Industrialisation in The Non-Western World

INDU STRIA LIZATION IN TH E NON-WESTERN WORLD
This page intentionally left blank

INDUSTRIALIZATION IN THE
NON-WESTERN WORLD
Second Edition
Tom Kemp
O Routledge
jj> ^ ^ Taylor & Francis Group
NEW YORK AND LONDON
First published 1983 by A ddison Wesley Lim ited
Second edition 1989
Fifth impression 1998
Published 2013 by Routledge

2 Park Square, M ilton Park, A bingdon, Oxon 0X 14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an im print o f the Taylor & Francis Group, an informa business
C o p y rig h t © 1983 ,1 9 8 9 , T aylor & F rancis.
All rights reserved. No p art of this book m ay be reprinted or reproduced or utilised

in any form or by any electronic, m echanical, or other m eans, now know n or hereaf
ter invented, including photocopying and recording, or in any inform ation storage or
retrieval system, w ithout perm ission in w riting from the publishers.
Notices
Knowledge and best practice in this field are constantly changing. As new research
an d experience b ro ad en our u n d erstan d in g , changes in research m ethods, profes
sional practices, or m edical treatm en t m ay becom e necessary.
Practitioners and researchers m ust always rely on their own experience and know l
edge in evaluating and using any inform ation, m ethods, com pounds, or experim ents
described herein. In using such inform ation or m ethods they should be m indful of
their ow n safety and the safety of others, including parties for w hom they have a
professional responsibility.
To the fullest extent o f the law, neither the Publisher n o r the authors, contributors, or
editors, assum e any liability for any injury an d /o r dam age to persons or property as a
m atter of products liability, negligence or otherw ise, or from any use or operation of
any m ethods, products, instructions, or ideas contained in the m aterial herein.
ISBN 13: 978-0-582-02182-2 (pbk)
British Library Cataloguing in Publication Data

Kemp, Tom
Industrialization in the non-W estern
world.
1. Industrialisation, to 1982 —Case
studies
I. Title
338'.00722
Library o f Congress Cataloging-in-Publication Data
Kemp, Tom.
Industrialization in the non-W estern world / Tom Kemp. — 2nd ed.
p. cm.
Bibliography: p.
Includes index.
ISBN 0-582-02182-0 (pbk.)
1. Industrialization— History. 2. Economic development -History.
I. Title.
HD2321.K433 1989
338.09— del 9 88-28581
CIP
Set in 10/12pt Linotron Baskerville

CONTENTS
Acknowledgements viii
Preface to the first edition ix
Preface to the second edition xii
1. Industrialization: past and present 1

T he beginnings of industrialization 1
Reasons for industrialization 5
T he British model 6
American influence 9
T he need for industrialization 11
Planned industrialization 11
Conditions o f industrialization 14
T he social cost 17
2. Japan: a meteoric rise 20

T he Meiji period 21
Economic effects of the First W orld W ar 26
Conditions of labour 28
Economic crisis 30
W ar and the growth of nationalism 31
Recovery 35
Reasons for success 39
Social costs 48
3. T he Soviet model: a critical view 50

Early industrialization 50
T he Revolution and its afterm ath 55
v
Industrialization in the non-Western world
T he New Economic Policy 58
T he Five-Year Plan 65
T he consequences o f collectivization 67
Industrialization 68
T he hum an cost 69
T he Second W orld W ar 70
Reconstruction 71
M odern Soviet industrialization 73
Present-day problems 73
Soviet industrialization as a model 77
Evaluation and interpretation 78
4. India’s industrialization: problems and pitfalls 84
T he beginnings of capitalism 87
Results of the First W orld W ar 93
Results of the Second W orld W ar 95
T he British withdrawal 97
Planning 98
T he Second Plan and after 102
M odern Indian industrialization 103
T he T hird Plan 104
Reasons for failure: the lack of agrarian change 109
Poverty 112
5. China: the slum bering giant awakes 115

T he old o rder 117
Foreign influence 120
T he new regime 128
Planning 132
T he Great Leap Forward 134
T he Cultural Revolution 137
T he new orthodoxy 139
A relative success? 143
6. Brazil: dependent industrialization 148

Portuguese colonization 149
T he British influence 152
M odernization 156
Depression 158
Towards industrialization 160
Results o f the ISI strategy 161
T he new regime 167
T he current industrial scene 171
vi
Contents
7. Nigerian industrialization: African variant 176
T he colonial inheritance 176
T he growth of nationalism 181
National planning 186
T he growth of industrialization 188
Indigenization 190
8. Industrialization in the ‘developing’ countries 198

Origins of underdevelopm ent 199
M odern disadvantages 203
Developments after the First W orld W ar 204
Developments after the Second W orld W ar 205
Industrialization of smaller countries in Asia 208
Influence o f the MNCs 213
Newly industrializing countries and the world m arket 220
Egypt 222
T he world economic crisis 224
Success o f industrialization? 225
Social consequences 227
9. Conclusions 229
Comparative models 230
Bibliography 237
Supplementary Bibliography (Second Edition) 242
Index 245
Acknowledgements
We are indebted to the W orld Bank and O xford University Press

(New York) for permission to reproduce our table on pp. 214—17.
Preface to the first edition
Industrialization is increasingly being studied by economists and

economic historians as a process in its own right which brought
into being the m odern world. It is widely seen as the m ajor means
through which those areas of the world which suffer from poverty
and backwardness can move closer to the advanced nations. It is
seen as the key to both ‘growth’, in the sense of an increase in
per capita incomes and ‘developm ent’, m eaning a m ore rounded
structural transform ation.
In its approach to industrialization, this book follows two previ
ous books. T he first, Industrialization in Nineteenth Century Europe
(Longman 1969) confined itself to those European countries which
followed in Britain’s tracks before the First W orld War. T he second,
Historical Patterns of Industrialization (Longman 1978), besides taking
up some general themes such as technology, transport and banking
and their relationship to industrialization, also included some brief
case-studies of non-European countries. This volume carries on
the story into the twentieth century, linking the case studies of the
earlier books and concentrating on the ‘non-W estern W orld’.
T he phrase, ‘non-W estern W orld’, needs a word of explanation.
It is used here in a mainly geographical sense, to indicate that the
older industrial countries of W estern Europe and N orth America
have been excluded. T he emphasis is thus on the late-comers or
followers on the path of industrialization outside those areas. It is
not denied that the Soviet Union shares many ‘W estern’ traditions,
or that they have m ade a deep im print on some of the other coun
tries discussed here. However, developm ent in these ‘non-W estern’
countries has to be seen, as far as possible in their own term s while
avoiding a Euro-centred approach.
ix
T he choice of countries is not exactly arbitrary, though the
earlier economic history o f Russia, Jap an and India has been dealt
with in the previous books. First o f all, the countries are large, if
not in population and area alone, then in specific weight in the
world economy, as in the case of Japan. T hat means, also, when
the populations are added up, that they represent something like
one-half of the total world population. It is difficult to be accurate
though, as the population o f China, India and other parts of the
world is not known for certain. However, at the end of the 1970s the
population of the selected countries was approxim ately as follows:
Soviet Union: 260 million
Japan: 112 million
Brazil: 110 million
India: 620 million
China: 850 million
Nigeria: 80 million.
T he figures for China and India are the lowest estimates and the
real totals may be very m uch larger. In any case their populations
are increasing rapidly.
T here seems to be m ore sense in taking countries of this scale
rath er than, say, dealing with the experience of small countries such
as Taiwan, Cuba or Albania. On the other hand, large countries
have distinct advantages: they may have a m ore varied raw material
endowm ent, a larger labour force and a bigger potential home
market, thus perm itting greater scale economies. Because of this,
their experience may bear little relation to that of smaller countries.
However, even for large countries autarchic developm ent is costly,
if not impossible, as the Soviet policy of ‘socialism in one country’
shows. Even the largest countries are part of a world m arket and
gain advantages from participating in the international division of
labour.
This book deals with the recent economic experience of about half
of hum anity and considerably m ore than half of the ‘non-W estern
world’. It will be shown that while industrialization has some
common underlying features, it works itself out in distinctive ways in
specific historical and national conditions. M oreover there are basic
differences between industrialization in m arket economies, even
where the state plays a positive role, and in those countries having
nationalized property relations and a centrally-planned allocation
of resources. T he choice o f countries enables variants o f both types
to be examined.
x
Preface to the first edition
T he approach adopted is an historical one, based upon the
view that the path followed by each country is determ ined to a
very large extent by its past. It is from a study o f history that the
differential receptivity of particular countries to industrialization
can be understood.
Any discussion o f industrialization in the twentieth century is
bound to be concerned with the prospects o f the ‘developing’ coun
tries. Assessment of their achievement so far differs widely. Some
of these countries have begun to industrialize with some success in
purely quantitative term s (GNP per capita). O n the other hand, it is
claimed that their economies rem ain peripheral and dependent and
that they have not been able to replicate successfully the experience
of the older capitalist countries. A chapter illustrated by brief case
studies is devoted to the problems of the developing countries.
This book is intended as an introductory text for students
of economic history, political economy and developm ent studies.
It aims to open the way for fu rth er study by evoking interest,
suggesting what the problems are and why they are im portant for
the future of hum anity and not ju st for academic reasons. T he main
authorities are indicated in the bibliography, which is also intended
as a guide for m ore detailed study. O ne’s approach and views are
influenced by so m uch read, heard and experienced that it cannot
be regarded as a full indication of sources. As with the previous
books, I have avoided footnotes and long quotations from other
texts; this is not because the authors to whom I am indebted may
not have m ade the point at issue better or m ore clearly than I do,
but because I feel that by refram ing it in my own words, I can make
the wider argum ent m ore comprehensible to the reader.
This book, like its predecessors, owes a great deal to discussions
over many years with students and colleagues in the D epartm ent of
Economic and Social History in the University o f Hull and to the
facilities offered by the Brynm or Jones Library. It was completed
while enjoying the hospitality of the D epartm ent of History in the
University o f California, Irvine, in 1981-82. It is dedicated to the
memory of the late Professor H erbert Kisch o f Michigan State
University, an admirable scholar and devoted friend.
Preface to the second edition
W ritten in the early 1980s when the world was in recession, oil prices
were high and the dollar was strong, many parts of this book inevi
tably reflected the prevailing economic situation. T he debt crisis
had not yet struck with full force. Oil-producing countries seemed
destined for prosperity, until reserves ran out, and consumers were
adjusting themselves to what seemed to be perm anently higher
prices. Mikhail S. Gorbachev was an unknown provincial official
and the Soviet Union seemed to be heading towards stagnation. T he
newly-industrializing countries of East Asia were at an earlier stage
o f their apparently relentless rise; the growing power of Japan was
already palpable, but its consequences were not always clear, and
perhaps are still not so today. It suffices to m ention these factors
for it to be obvious that certain assumptions and many statements
made in the first edition have therefore dated. In this revision an
effort has been m ade to eliminate the m ore dated parts o f the text
in the light of subsequent events and from the perspective of the
end of the 1980s. It is hoped that these changes will prolong the
usefulness of this short book, itself a modest introduction to vast
and complex problems of great historical significance.
In carrying out this work o f revision, I realized how ambitious
the original volume had been in dealing with six countries as diverse
as those which had been chosen as case studies. In the few years
which had elapsed since the first writing, multiple, and sometimes
dramatic, changes had taken place in each of these countries relevant
to their industrialization. At the time of writing it is still too early
to discern the future contours o f the Soviet economy as they will
em erge from the new departures in economic policy prom oted by
General Secretary Gorbachev; a review o f the situation and his
Xll
Preface to the second edition
chances o f success would require a study in itself. In fact, changes
in prospect (rather than actually carried out) have generated a vast,
specialized literature. No less dram atic have been the changes in
China to which the first edition had already m ade some reference.
An entirely new atm osphere seems to have been created in that vast
country. So many changes have taken place, with m ore in the offing,
that it can be seriously asked w hether China will rem ain a ‘socialist’
country or w hether it is already firmly on the capitalist road. Many
of the reform s and policies adopted by T eng Hsiao-ping seem to
be inspired m ore by the practice of Taiwan than by M ao-Tse-tung
thought.
While the situation in the other four countries has been
less dramatic, they have had their crises and problems. Jap an
continues to push forw ard, its continuing prosperity, like that o f its
East Asian emulators, dependent upon the continued ability, and
willingness, o f the other advanced capitalist countries to buy their
m anufactured goods. T heir m ounting trade surpluses threaten the
stability of world markets. Within a few short years the United States
has moved from creditor to debtor status. Japanese branch plants,
banks and trading companies are operating worldwide.
Meanwhile it is clear that the industrialization o f Nigeria and
the fu rth er growth o f Brazil (num ber eight in the industrial league
table) are less favourable than they were at the beginning o f the
decade. Both are now burdened with heavy debts. Living standards
have declined, or are declining, even for the m ore affluent classes
in society. U nder the pressure o f the economic crisis the generals
who had taken over in 1964 shifted into the background in Brazil,
while in Nigeria civilian governm ent collapsed un d er charges of
corruption and squanderm ania. A full discussion o f the reasons for
these upheavals, and their possible outcomes, would go beyond the
scope o f this book. One obvious lesson is that the supply and dem and
conditions for vital commodities, such as oil, can have far-reaching
effects on the world economy and its national components. T he
impact on particular countries can have a profound effect on their
economies. So, indeed, can natural conditions. T he state of the
monsoon can be as im portant for India as the price of oil or the
behaviour o f the stock market.
It should not be overlooked that discussions of industrialization,
and the policies proposed, are ideologically founded. At one time
it was commonly accepted that the state had a positive role to
play. Even countries as committed to capitalism as Japan, Taiwan
or Nigeria drew up economic plans for four or five years ahead. T he
xiii
vogue for planning is un d er a cloud, even in India. T he excesses of
licences and controls have generated a counter-m ovem ent backed
(not unnaturally) by business as well as by economists who have
moved with the prevailing professional winds in the international
community. T he watchwords o f ‘privatization’ and ‘liberalization’,
favoured by the W orld Bank and the International M onetary
Fund, are deeply influencing the strategy o f industrialization in
many countries. Again, it remains to be seen what effect the freer
operation o f m arket forces will have upon the less developed
countries, and countries like India or Brazil in particular. Even
in the East Asian countries, industrialization was not a product of
unbridled capitalism and free m arket forces but owed a great deal
to the (still) visible hand o f the state. T he Japanese had already
shown the way. In any case, these countries constitute very special
cases and they may not have many lessons for those countries which
are still lagging seriously behind in their development, especially in
Latin America and Black Africa.
This revision was completed while enjoying the hospitality of
the D epartm ent o f Economics, the University of N orth Carolina at
Chapel Hill. I recall, particularly, discussions with Sandy Darrity. It
also happened that an old friend, T ed Koditschek, was in Chapel
Hill at the same time and was kind enough to read the book and
make some suggestions.
Chapel Hill, 24 Ju n e 1988
xiv
CHAPTER 1
Industrialization: past and

present
T here is scarcely a country in the m odern world where an

im provem ent in the material level of living is not regarded as a
desirable goal by rulers and ruled alike, and where industrialization
is not seen as the necessary means to achieve it. History is clearly on
the side o f this view. T he nations which are rich and powerful possess
a technologically advanced industrial base, capable of turning out a
large volume of m anufactured goods. Nations which are poor and
dependent have little or no industry and are primarily agricultural.
Industrialization has become a world process, no longer confined
to a privileged group o f leading countries. It embodies the technol
ogy and organization which have transform ed production m ethods
and ways o f living at a staggering rate in the twentieth century. T here
are now scarcely any inhabitants o f the globe unaffected, for good
or ill, by its forw ard march. An understanding o f its nature and
consequences is indispensable if the m ajor transform ations taking
place in social as well as economic life in our time are to make sense.
THE BEGINNINGS OF INDUSTRIALIZATION
T he process began in a group of islands off the north-west coast

o f Europe some two centuries ago, with what is usually described
as the British Industrial Revolution. More a technical term than
an actual definition of what took place, it has been the subject of
intensive research by innum erable scholars who have failed to come
to any definitive conclusions about its origins. W hat seems clear is
that it was the leading edge o f a change o f E uropean dimensions
1
and that nothing else like it was taking place at that time anywhere
else in the world. W hatever brought about industrialization in its
original home, it can be said that other countries received it, along
with m uch else o f E uropean origin, as an import. Such a statement
poses many problems, not least how it was that countries which
had developed civilizations many centuries ahead of Europe, were
subsequently left behind because they failed to apply knowledge to
raising the productivity o f labour.
Consideration of E uropean industrialization in a world per
spective suggests that it was the outcome of a series of changes
going back to the Middle Ages; cause and result of a dynamic
lacking in other parts o f the world. T he landm arks in this dynamic
process may be distinguished, though their precise contribution
to industrialization may not be easy to explain. They include the
Renaissance o f learning (indicating the role o f the Classical world
and the ancient M editerranean civilizations); the Reformation,
which, though a religious movement, began the break up of
existing modes o f thought inimical to innovation and the pursuit
of material success; and the voyages of discovery whereby, through
their superiority in navigation, Europeans began to open up other
continents for trade and dom ination. As some historians have
observed, Europe, or rather its most advanced regions, became
the core countries in a world economic system in which other areas
m ade up the periphery. T he starting point o f change, however, is to
be found, not in the expansion o f trade and the opening up o f new
markets, but rather in the transform ation of social relations in the
leading European countries. This transform ation, which had been
going on for some time, had begun to assume a m ore decisive form
in the course of the sixteenth century. T he change, which can be
briefly summ ed up as the rise of capitalism, provided the means and
the impetus for overseas expansion and prepared the way for the
transform ation of production and the transition from an agrarian
to an industrial society. It was, indeed, a long draw n-out process of
which the Industrial Revolution was the first culmination.
It was characteristic of even the most advanced countries outside
Europe that, having reached a certain equilibrium, they failed to
generate further dynamic forces of change. European feudalism,
on the contrary, gave freer rein to the individualist pursuit of
acquisition both by the landowners and by the m erchants and
financiers whose strongholds were the towns. This may have been
because it was a newer, less stable and less centralized system
than, say, that which governed the tributary states of Asia. Within
2
Industrialization: past and present
the fram ework of European feudalism, means of production were
turned into capital, and a wage-earning class separated from the
land came into existence. Agriculture turned over to producing
for the m arket and, in some places, industrial production by the
rural population m ade a greater contribution to income than did
cultivation o f the land. As the transition to the capitalist m ode o f
production began to take place in the most advanced regions, so
the surplus product, instead of going to the support of a largely
parasitic ruling class, was, to an increasing extent, passing into
the hands of dynamic entrepreneurs who used it to expand trade
and production still fu rth er in a continuous process of capital
accumulation. While m erchant capital advanced in buying and
selling was for a long time the predom inant form, it was in
Europe that capital, in the form of means of production, began to
assume growing importance. Industrialization, properly speaking,
only began as the m erchant extended his control over production
through his ownership of capital assets, or as the direct producer
himself appeared in the role of employer and capitalist; the really
revolutionary way, as Marx described it.
With the application o f capital to industry, at first mainly in the
form of circulating capital laid out on raw materials, wages and
goods in process, profit provided a new and powerful incentive for
increasing output and reducing costs. T he rate of profit, the return
on capital, became the governing motive of production and proved
to be a most powerful instrum ent for bringing about a continuous
im provem ent in the organization and technique of production
and also o f distribution and m arketing. Industrialization, in its
inception, issued from this drive for profits when it took hold of a
sizeable part of production; it was the child o f capitalism, though
not a consciously desired or expected result. It came about through
the spontaneous interaction o f num erous ‘entrepreneurs’ obeying
m arket indicators in their quest for m aximum profits and, in doing
so, engaging in a restless search for ways of producing and selling
m ore goods, reducing costs of production and finding markets.
Only with a certain combination of social and cultural conditions,
however, could the industrial entrepreneurs em erge as a class
capable of bringing about a far-reaching economic transform ation.
Such conditions appeared in Europe before they did in other parts
of the world, if indeed they ever would have done. This favourable
environm ent, as well as the existence of entrepreneurs who seized
the opportunities for profit and accumulation which it presented,
were the products of complex changes going back over centuries
3
which m ade particular areas o f Europe, and nowhere else, the
theatre for a transform ation of dram atic historical significance.
W hether there were in other continents signs o f the beginning
of such a change, or whether it can be assumed that it would
eventually have taken place somewhere else, is a controversial point
on which there can be no conclusive evidence. To stress the priority
o f Europe is merely to state an historical fact and not to succumb
to ‘Euro-centrism ’. Once the capitalist m ode of production had
taken root, principally in parts o f Britain and north-west Europe,
during the sixteenth century and afterwards, competitive m arket
forces compelled individual entrepreneurs to plough back part of
their profits into expanding and improving plant and equipm ent,
extracting m ore surplus from the dependent labour force of
wage-earners. At the same time they were subject to m arket
forces on the dem and side: they had to follow changes in tastes
and purchasing power, improve existing products, seek out new
ones and continue the drive to reduce costs o f production through
m ore efficient organization and cost-reducing m ethods including
new technologies. This was the dynamic o f industrial capitalism
which m ade it superior to all preceding and contem porary modes
of production. It was this superiority in developing the productive
forces o f hum an labour which m ade possible revolutionary changes
in one section o f the economy after another, propelling it onto a
path o f ascending growth while giving a new shape to society as a
whole. T he view that the whole process was the happy result o f a
series of accidents does not seem plausible or, indeed, in accordance
with the facts.
A fter taking shape in a few regions of Europe, industrialization
spread not only to other parts but also to those ‘non-W estern’
countries which are the subject o f this book. It would be impossible
to talk about the diffusion of industrialization if the process did not
assume a broadly similar pattern whatever the period or the social
and political environm ent in which it takes place. T he underlying
feature is the transfer o f labour and resources from the agrarian
(food-producing) to the m anufacturing and associated sectors,
with the corollary of a shift in consum ption from food to
non-food items as a proportion o f total output/dem and as
income rises. It is, essentially, a dynamic process o f change
and growth which involves a continuous rise in production and
productivity resulting from the application o f machine technology
and new ways o f organizing the labour process. T he non-agrarian
population rises, while that part o f the population engaged in
4
food and prim ary production at some stage declines. This means
an increase in the surplus available from agriculture, either as a
result o f rising productivity in the industrializing country, or of its
ability to obtain the necessary food supplies by a lesser expenditure
of resources through foreign trade. Further, as ‘deagrarianization’
takes place an increasing proportion o f the population will be located
in urban areas. With rising incomes and urbanization the dem and
for m anufactured goods and then for services of all kinds from the
tertiary sector will grow. T he proportion o f the occupied population
in industry will peak at a m ore advanced stage; assuming continued
income growth the prim ary sector will shrink still fu rth er while
employment will continue to rise in the tertiary sector, especially
in such fields as distribution, administration, health care, education
and leisure activities. T he end result of industrialization, therefore,
is not a predom inance o f industrial workers, but a situation in
which they rem ain fairly stable, am ounting perhaps to one-third
of the total labour force. It is, however, the highly productive and
technologically advanced m anufacturing sector upon which the
resulting occupational distribution depends. In addition to this, to
maintain its high per capita consum ption the industrialized country
makes insatiable dem ands upon raw material and energy supplies,
some of which are non-reproducible and many o f which have to
be im ported from dependent, prim ary-producing and low-income
countries. ‘Successful’ industrialization thus depends upon many
special conditions, including a particular balance o f world forces
favouring the advanced, or ‘core’ countries.
REASONS FOR INDUSTRIALIZATION
T he specific examples o f industrialization discussed in this book will

suggest that some prior social, political and cultural arrangem ents
are m ore conducive to the process than others. W hat exactly the
prerequisites are is a m atter for debate. Excluding resource endow
m ent and factors relating to geographical position and climate,
there has certainly to be receptivity to change, the acceptance of
material values, a population adaptable to new forms of work, and
a leadership of some kind, be it a class, or section o f a class, or a party,
able to take the initiative. Some societies have been particularly
hospitable to industrialization, such as eighteenth-century Britain
and Meiji Japan, whereas in India and China it has encountered
5
serious obstacles. T he examples suggest that colonial societies have
generally not provided a favourable environm ent and that, for
such countries, the ending of foreign rule has been necessary
before industrialization could advance beyond an enclave type.
Otherwise, the historical evidence is that industrialization can take
place in very different geographical, social and political settings;
that it can be adopted by people with every variety of ideological
and religious conviction, but that the results are likely to be m ore
successful where the conditions referred to above are most fully
met. Deviations from the general pattern may reflect factors specific
to a particular country or region and its relationship to the world
market. An area which industrializes rapidly at one time may, at a
later period, slow down or regress; ‘deindustrialization’ has afflicted
many areas and is still doing so.
T here are general characteristics common to every case and
special features which can be attributed to national or regional
conditions and timing. W ithout entering into a detailed typology,
a broad classification may be made. T he first group includes those
countries, or regions, which began their industrialization at the same
time as Britain or soon afterwards; the second group comprises the
first ‘late-comers’ who began in the nineteenth century or early in
the twentieth century; and the third group is m ade up o f ‘followers’,
who began in the 1930s or after the Second W orld War.
THE BRITISH MODEL
Britain was the pioneer and to a large extent the model for the
regions following closely on her heels in W estern Europe and N orth
America, which were able to take over similar machines, methods
o f production and forms of organization. This was still m ore the
case for the second group which would include the United States
as a whole, Germany, Japan and Tsarist Russia. It is a valid claim
that these countries enjoyed certain advantages over the pioneer,
Britain, in that they were able to begin with a m ore advanced
technology. They were also able to profit from an example, ju m p
over stages, set up larger enterprises able to realize scale economies,
and insert themselves into a growing world m arket u n d er favourable
conditions. As for the third group, which is largely m ade up of
countries em erging from a prim ary exporting role as colonies and
semicolonies, their late arrival on the scene has, in many ways,
6
put them at a disadvantage. Some o f these countries have, it is
true, achieved rapid rates o f growth, but the experience so far is
incomplete and too mixed for easy generalization.
T he British model of industrialization issued from an already well-
developed m arket economy. T he accumulation and concentration
of capital as well as the creation of a wage-labour force were already
well advanced; agrarian relations had already been substantially
transform ed on capitalist lines; and Britain held a strong position
in world trade and shipping. T he British Industrial Revolution was
the product of the complex interaction o f a m ultitude of private
entrepreneurs seeking profit and following m arket indicators. It was
a spontaneous, organic process and the end result was no part o f the
intention o f those who brought it about. T he industrial technology
represented no great scientific break-through; it reflected the state
of empirical knowledge at the time, and the needs of production.
Industrial growth was, at first, confined to a few fields, chiefly
textiles and not always based upon machinery. O f equal, if not
m ore im portance than m achine-production, was the creation of
a large, disciplined labour force, working partly in factories, and
partly on labour-intensive processes in their own homes or small
workplaces. Com plem entary expansion took place in the provision
of fuel (coal-mining) and raw materials (the cotton-gin on the
American plantations; iron smelted with coke), and in the creation
of im proved transport (canals and turnpikes) and financial facilities
(country banking and the bill o f exchange). T hus a m ore efficient
(cost-effective) apparatus of production, exchange and distribution
was built up, largely at first on the basis o f an expanding internal
market, and British m anufacturers were able to preem pt the main
export markets for cheap m anufactured goods (mainly textiles).
Once this process had begun, industrial profits provided the
main source o f continued capital accumulation: the ploughing
back of profits. Agricultural efficiency improved before and
during the industrialization process; labour was released from
the land, food and raw materials were supplied to the growing
industries and towns; the rural population provided a m arket for
the m anufacturing sector. T he growth o f consum er goods industries
opened up a m arket for the capital goods industries (iron, coal,
machine-making) . Early industrialization generated a dem and for a
new source of power, and the response to this was the steam engine.
Later, new machines and machine-tools, m ore accurate gauges and
other instrum ents m ade it possible to tu rn out metal parts with
greater precision and on a larger scale, thus enabling firms to
7
make machines with machines. This story is well enough known. It
could not be repeated elsewhere, nor was there any need to repeat
it once the basic model existed in term s o f practice and machines,
as designs and skilled people could be im ported.
T he British model o f industrialization was strongly m arked by
its timing; it was distinctly a product of the eighteenth century and
it tended to be slow in adapting to changing conditions; this was
evident even as early as the m id-nineteenth century when it was
supposed to have reached its high noon. It was an individualistic,
small scale and family type capitalism which prevailed in the first
place. Not only did the state play no positive role, but capital still
assumed a personalized rather than a corporate form and the
banks took little part in financing long-term investment. T he later
industrializing countries (and Jap an after 1868) while influenced
by the British model in some particulars, modified it considerably
in others and added new features of their own. They were able
to take over an already developed technology and were poised to
outdistance the pioneer, especially in the scale and integration of
the production process, geared to expanding markets. T he strong
elem ent o f conscious imitation and borrowing visible in the later
developing countries enabled the state to act m ore positively to
assist private capital and speed up the accumulation process by
providing infrastructure, educational and training facilities for
the labour force, research and development, military contracts
and protection for the hom e market. T he late-comers also found
that continued profitability depended upon extending the m arket
beyond national limits and that they became increasingly dependent
upon im ported prim ary products: hence an interest in overseas
expansion, the ‘new imperialism’ of the late nineteenth century. T he
agrarian population was drastically reduced in England, whereas a
large peasantry survived in the European industrial countries until
after the Second W orld War. Its presence helped to keep down
per capita incomes, and at the same time provided a reservoir o f
labour for the rapid growth o f the latter period. Thus, by the late
nineteenth century, a m ore organized type of industrial capitalism
had appeared in the newer industrial countries, notably in Germany
and the United States. In the European countries, though not in
the United States, the state tended to intervene m ore positively
in the economy. Everywhere business began to be organized in
a m ore corporate way, seeking control over unchecked m arket
forces. Cartels, trusts and combinations o f every kind reflected
the increased dem and for capital as the scale of production grew
8
in line with the imperatives of m ore advanced technology able to
obtain ever-larger scale economies. Instead of many competing
firms there tended to be a small num ber o f giant, integrated firms,
each operating in many fields besides m anufacturing. Oligopoly
took the place of competition as the typical m arket situation
of advanced industrial capitalism. T he individual entrepreneur,
investing his own capital and m aking the main decisions, was being
superseded by a m anagerial hierarchy responsible to a board of
directors, itself often representing interlocking interests with other
concerns and with the banks. So-called ‘m anagerial capitalism’ was
carried furthest in the United States but all countries followed the
same course.
AMERICAN INFLUENCE
As industrialization moved into a higher gear the old British

model became outdated, and it was in Germany and most of
all in the U nited States that the new model took shape. At least
from the time o f the First W orld W ar there is no doubt that the
United States had become the pace-setter for the older industrial
countries as well as for the newcomers. As a new country o f recent
settlement, its economy form ed in an environm ent richly endowed
with natural resources where the restless search for material success
and acquisition had uninhibited scope, this superpower of twentieth-
century capitalism took industrialization to new heights. Making an
increasingly powerful impression in Europe after the First W orld
War, when Taylorism and Fordism became fashionable concepts,
and even though its reputation was tem porarily tarnished by the
Depression of the 1930s, the massive capacity of its industrial
machine in war as in peace impressed contem poraries, m uch as
Britain had done in the early nineteenth century.
American industrialization was based first and forem ost on the
highly mechanized production o f standardized articles for a large
and expanding mass m arket. T he ability o f the giant American
enterprises to develop the most advanced, science-based technology,
to follow out the logic o f the machine-process on a massive scale,
m ade possible achievements in production and productivity which
far out-stripped those of other countries. Certainly before the
Second W orld War, the American worker had m ore power behind
his elbow in the shape of a heavier investment in specialized and
9
complex m achinery than his European counterpart. T he large inter
nal m arket based on high per capita income levels and a relatively
standardized dem and m ade it possible to realize enorm ous scale
economies. American firms took the lead in the new industries of
the late nineteenth and early twentieth centuries: domestic electric
appliances, petro-chemicals, business machines, processed foods,
m otor vehicles and the equipm ent needed to m anufacture them.
T he American system o f m anufactures, already becoming distinc
tive in the m id-nineteenth century, was organized around assembly-
lines requiring huge investments in fixed capital. Consequently, to
m aintain profitability, industrial firms were u nder compulsion to
operate with the highest possible rate of through-put; they also
had to have a correspondingly large market. As the m arket for one
product reached saturation point, there was pressure to diversify
into other fields so that capital should not lie idle. T he US giants
were thus driven to expand into contiguous fields of production
and also to extend their operations into other countries, especially
those having high tariffs. Well before 1914, branch plants had
been set up in Canada and in some E uropean countries, and the
trend continued later into Asia and Latin America. United States
capital export took the form primarily of direct investment. In the
period after the Second W orld W ar the giant US enterprises, oddly
described as ‘m ultinational corporations’ (MNCs), extended their
operations worldwide to such an extent as to add a new dimension
to industrialization. For some regions, the branch plants of MNCs
were their first acquaintance with m odern industry.
T he powerful example o f the United States, the high standards
o f living m ade possible by its enorm ous productive power, together
with the role that it had played as a military arsenal during the
Second W orld W ar, were potent factors in encouraging the drive
to industrialization. This was true both of the incompletely industri
alized E uropean countries and Japan, which were still pursuing an
earlier model, and o f the newly independent ‘developing’ countries
of the 1950s and 1960s. In the case of the form er, new industries
were set up and older ones m odernized on American lines, often
by American firms. This was especially true o f the most advanced
industries; in some o f these US branch plants had existed since
pre-war days, in others branch plants were newly founded or native
firms bought up. M anagem ent went to school with the Americans
and the renovation o f European and Japanese industry took place
on American lines. In time some local firms were so successful that
they out-distanced their teachers. This was exemplified in the 1970s
10
by the growing im port into the United States of m anufactured
goods, including m otor cars, from Japan and European countries.
T he successful new industrializing countries such as Brazil and
South Korea also reflected the American model and the direct
influence o f American capital and the MNCs.
THE NEED FOR INDUSTRIALIZATION
Since the Second W orld War, industrialization has been generally

sought by the newly-developing countries as the means to raise living
standards and to ensure national independence. Widely publicized
tables of income levels of the countries of the world leave no doubt
that incomes are generally higher the greater is the contribution
m ade by m anufacturing industry. Countries which have little or no
industry are almost invariably poor. T he lesson is plain and simple:
to overcome poverty and economic backwardness a country must
industrialize. This is seen as the key to growth and the prerequisite
for development. T he chapters which follow provide some oppor
tunity to test these propositions.
Until the Second W orld W ar industrialization had still only
extended to a relatively small num ber of countries, mostly in
the N orthern hem isphere and, with the main exception of Japan,
inhabited by Europeans or their descendants. Since then the process,
backed by international bodies such as the United Nations and the
W orld Bank, has spread to many parts of the world. It has become
the declared policy of the governm ents of new states, large and
small, form ed from the old colonial empires. Conscious attempts
have been m ade to follow models already in existence, as well as
to develop new ones appropriate for particular areas or types of
country. Industrialization has, without doubt, become a global
process and, although it proceeds very unevenly, a new surge has
been taking place. Even where it has scarcely begun it has been
adopted as a goal, especially by the new governing elites hoping
to consolidate their national independence, emulate the advanced
countries and raise income levels (not least their own).
PLANNED INDUSTRIALIZATION
Until the Russian Revolution o f 1917, industrialization had taken
11
place only on the basis o f capitalist property relations: private
ownership of industry with the allocation o f resources and the
distribution o f goods determ ined by m arket forces. Socialists had,
of course, projected the alternative o f a planned economy in which
the means of production would be nationalized or socially owned,
though their view o f how it would work was perhaps sketchy.
O rthodox economists, or some of them, claimed that such an
economy would not work. Socialists assumed that once capitalism
had outlived its progressive role (which most o f them granted it had)
- that is, when it was no longer able to develop the productive forces
- it would be superseded by a proletarian revolution (the Marxist
interpretation) or would be gradually and by consent replaced by
a nationalized economy (the Fabian or reform ist interpretation).
In any case, the new socialist o rder would inherit the assets of an
advanced capitalist society; it would furth er develop this industrial
base, substituting public for private ownership o f the means of
production and planning for the m arket as the allocative m echa
nism. It was assumed that production would then be determ ined
by social needs rather than by the criterion o f profit. Exactly how
this would influence what was produced, and how consum er needs
would be reflected in the plan, were questions very m uch left for
decision when the time came. However, most socialists assumed
that industrialization was desirable provided that it was subjected
to planning embodying in some way the goal o f satisfying social
needs. Only a few romantics and Utopians thought that the machine
should be abandoned and that society should be reorganized into a
comm une system with a retu rn to handicraft production.
Socialist planning, though conceivable in various forms, has to
be distinguished from state intervention in the economy or the
nationalization of some industries now general in the capitalist
states. T here are many examples o f intervention o f this kind going
back, in some cases, to the seventeenth century. In the nineteenth
century it was usual for the state to assist in the construction of
the infrastructure or to set up and ru n certain industries. In this
century, and especially since 1945, concerted intervention by the
state in m arket economies has adopted the label o f ‘planning’ while
clearly not being socialist in the sense discussed above, since the
main means of production rem ain in private hands.
T he first opportunity to translate the planned alternative into
practice came in Russia: a country which, although it had inherited
some m odern industry from the previous regime, rem ained
backward in comparison with the advanced capitalist countries,
12
and retained a huge peasant-dom inated agrarian sector. Soviet
planned industrialization, which began in the late 1920s, took place,
therefore, in an unprom ising environm ent. Instead of the planned
economy taking over from the already high level established by
industrial capitalism, it had to begin at a low level, in a society with
many feudal rem nants, where many o f the basic tasks of capitalist
developm ent had still to be accomplished. Coupled with this was
the fact that from 1914 onwards the economy had been battered
by war, revolution and civil war, and income levels had fallen far
behind those of the advanced countries o f the West.
A fter Stalin had gained power in 1924, he had imposed the
policy of ‘socialism in one country’ which m eant a partially
voluntary severance from the world m arket, on the assumption
that the revolution would rem ain isolated in Russia for an indefinite
period. While this isolation could not be complete it increased the
burdens which were imposed upon the population once rapid
industrialization was begun.
Stalin’s im print could be seen in the ruthless and barbarous
methods used to break the resistance o f the peasantry to enforced
collectivization from 1928 onwards. W hat can properly be called
the Stalinist model o f industrialization contained features which
conflicted with the aims o f socialism. However, this model, with all
its deform ations, was subsequently imposed on the Russian satellite
countries o f Eastern Europe after the defeat o f Nazi Germany and
was also adopted by the new regim e in China after the revolution
of 1949.
T he results o f the Stalinist type o f planned industrialization in
its original hom e and elsewhere have been equivocal to say the
least. While making possible the rapid industrialization of relatively
backward areas, the costs have been extremely heavy in terms of
hum an lives and sacrifices. It will be argued later that the methods
used did not arise from the planned economy as such, but were the
product o f a political struggle waged by the dom inant bureaucracy
led by Stalin to preserve its power. In any case, the promise of Stalin
and his successors to catch up and outstrip the leading capitalist
countries in output per head is far from being fulfilled.
T he attractive power o f the Soviet model reached its peak when
the capitalist world was plunged into the Depression of the 1930s,
and retained it on the basis o f the prestige gained by the victory over
Germany. For a time, as new countries began to industrialize after
1950 it still held some interest or even fascination. Subsequently,
however, interest in Soviet planning waned. This was partly because
13
knowledge spread about the hum an consequences of the methods
used during the 1930s, and the Soviet leaders themselves, after
Stalin’s death in 1953, added their own ‘revelations’. It also became
clear that its extension to the East E uropean countries had created
serious problems. Meanwhile, the ‘economic miracles’ enjoyed by
a num ber of capitalist countries during the post-war boom, by
increasing the quantity and variety o f goods available to the mass
of the population, considerably reduced interest in the tarnished
‘Soviet experim ent’. Even the Chinese developed serious criticisms
of the Soviet model and adopted some new practices which gained
them sympathy in the West. New industrializing countries were
generally deterred from following Soviet m ethods by the need for
foreign aid, unless they broke away from the capitalist world system,
as did Vietnam and N orth Korea. In short, the Soviet model and its
off-shoots or imitations have lost the power to attract. R ather than
being models they are best regarded as experim ents which should
be studied for the lessons they m ight teach, often of how things
should not be done. T he validity of an alternative form o f planned
industrialization to the type preferred by capitalism cannot be based
on these models with m uch conviction. On the other hand, their
shortcomings do not prove that an alternative is not possible and
preferable.
CONDITIONS OF INDUSTRIALIZATION
While it has been argued that industrialization as a process has

certain characteristic and repeatable features wherever it has taken
place or is going on, its specific form will depend upon conditions
of time and place. O n a national scale it will reflect num erous
geographical, historical, cultural and social factors. T he total
environm ent, it has been suggested, may be m ore or less favourable.
T he same production lines may have different results, materially
and socially, according to the country or region in which they are
installed. T he purpose o f the studies in this book is to bring out
the underlying similarities and the national peculiarities involved
in specific national cases.
In any event, the economy of each country is also shaped to
a greater or lesser extent by its relationship to the world market,
to which the timing of its industrialization has m ade an im portant
contribution; hence, for example, the difference between core and
14
peripheral countries. Consequently, it is impossible to understand
the economy o f a particular country without reaching back into its
history and recording the conditions u nder which it was draw n into
the world m arket. Historical forces acquire a m om entum which
makes them im portant factors, both in the short term and in the
long term. This is true w hether we are dealing with the economic
problems o f an advanced country such as m odern Britain or with
those of a developing country.
Although the national state has been chosen as the fram ework
for the studies which follow, it may not always be appropriate
as industrialization is often a localized or regional phenom enon.
Some degree of economic dualism is found in every country in
which it takes place. In Brazil, for example, the Sao Paulo region
was industrializing while m uch of the rest of the country rem ained
underdeveloped. In India, under colonial rule, m odern industry
was largely isolated in a few enclaves; in China the treaty ports
were the main setting for early industrialization. In the continents
which experienced prolonged E uropean colonial rule, the political
division into nation-states follows no economic rationale. In Africa,
for example, state frontiers existing today are largely the result of
arbitrary decisions taken by foreign diplomats a century or m ore
ago. T he division of Latin America into twenty separate republics is
no m ore logical from the economic point of view. In other words, in
the world today there are many national units which are too small to
support m odern large-scale industry and are insufficiently related
to their neighbours. O ther states, especially the large countries of
Asia, have limited resources in relation to population size and little
chance of developm ent without fundam ental agrarian change and
outside aid. O n the other hand, there are countries fortunate
enough to be endowed with valuable natural resources and which
have small populations, like the oil-rich states of the Middle East.
O ther oil-producers, such as Algeria and Nigeria, have large and
growing populations and have to face the problem o f what condition
their economies will be in when the oil runs out. Laying the basis for
industrialization before that happens would seem to be an urgent
need.
T he prospects of successful industrialization thus appear
very varied on a nation-by-nation basis. T he most successful
industrializers in recent decades can be regarded as special cases.
T here are the small Asian countries like South Korea and Taiwan
without great natural resources but having abundant labour power.
They have industrialized largely by supplying a certain range
15
of m anufactured goods to the world m arket with the help of
foreign capital, and as hosts to the branch plants o f the MNCs.
They have produced profit-hungry local entrepreneurs backed
by authoritarian governm ents encouraging the export drive and
reassuring foreign investors. T here are limited possibilities for other
countries to follow their example. Most small and underdeveloped
countries are locked into the world m arket in a dependent role as
prim ary producers —a role which is unlikely to change in the short
run.
T he international environm ent for industrialization is a changing
one and while it may provide opportunities for some countries to
do what South Korea and Taiwan have done, it imposes almost
insuperable obstacles for others. For example, the am ount of
capital and the level of technology necessary to establish m odern,
large-scale industry are increasing all the time. In many cases,
therefore, without foreign assistance, and the economic dependence
which that entails, industrialization may be difficult or impossible.
T he best that may be hoped for is that a country will fit into the so-
called ‘new international division of labour’ as a producer of cheap
m anufactured exports for the world m arket. Nationalist regimes,
such as that in Egypt, which have aimed at greater self-reliance
and have built up industries with state aid, have found if difficult
to continue without foreign capital. As will be seen, Brazil has
m ade rapid strides on the road to industrialization, but only at the
price o f increased dependence on the MNCs. Even China, with its
nationalized industry and comm une agriculture, is resorting to the
im port of foreign technology and encouraging foreign investment
on a limited scale.
T he overall growth o f industrialization on a world scale does
not in fact m ean that it has become less difficult than before.
It is too early even to write success over examples where the
industrialization drive has been most pronounced. These have
generally been associated with the export o f m anufactured goods
and thus must depend on continued growth o f world dem and. In
the absence of an industrialization effort, however, there would
seem to be little hope of prom oting developm ent and raising
income levels in the developing countries. T he gap between the
industrializers and the non-industrializers is wide and may be
growing. A solution may have to be found in new forms of
industrialization: it may be possible, for example, to concentrate
on small-scale industry, which would be m ore directly related to the
needs of the mass o f agricultural producers. O r an alternative to
16
the exisiting inequitable international division o f labour may have
to be found which encourages specialization rath er than the pursuit
o f greater national self-sufficiency. Such lines of approach would
require revolutionary change, with a planned organization o f the
world’s resources and productive capacity, which seems a long way
off.
Meanwhile, where industrialization has been going on, its short
term effects have been contradictory. Much of it has been based on
low wages and intensive work, even though wages may be higher
than in the surrounding countryside. T he m ajor gains have been
garnered by a minority o f the population and been slow to percolate
down to the lower strata. Class differences and regional disparities
may have widened. Large masses of people may have found not only
that economic developm ent has passed them by, but that they are
worse off than before. Masses of the rural poor have transferred to
the urban slums and shanty-towns. In the m ore highly developed
industries a better paid working class has appeared, constituting,
it has been claimed, a labour aristocracy. In other cases industry
has been built up on an abundant supply o f low paid labour,
women and even children, from a low income, rural background.
This cheap labour supply has attracted export-oriented industry
to the newly-industrialized countries o f Asia and Latin America.
Industrialization of this kind ought to be considered as ‘peripheral’;
it produces for foreign markets and is financed and controlled,
very often, from abroad. It does not bring about the far-reaching
structural transform ation and social change which accompanied it
in the advanced countries.
THE SOCIAL COST
It is true, o f course, that every historical example shows that

industrialization has a destructive as well as a positive side. It
means the uprooting of masses o f people from the land, the loss of
traditional employments, the underm ining and perhaps destruction
o f stable social structures. At the same time, it concentrates
newcomers in cities which are ill-prepared to receive them , and
the result is social disintegration, poverty and crime. While some of
the new urban population rise to new-found heights of wealth and
power others fall to depths below those o f the old society. However,
the problem of these social consequences of industrialization cannot
17
be gone into too deeply here. Such problems may suggest that
industrialization has sometimes been of the wrong kind, or has
been badly carried out, or that a coherent social policy is required
to m oderate or prevent them; but they do not invalidate the case
for industrialization.
Meanwhile, in the advanced countries, increasing doubts have
been expressed about the benefits of industrialization. W hat the
critics usually complain of is its tendency to produce an unlovely and
polluted environm ent, to impose uninteresting and monotonous
work on the labour force (i.e. most adults) and to prom ote a
competitive struggle for material success. T here are certainly
real and intractable problems arising from , or connected with,
industrialization which cannot all be blamed onto the social system.
Certainly where industrialization takes place in a capitalist m arket
economy, its side-effects will require interventionist measures to
prevent them doing irreparable damage. This was the significance
o f social reform s such as the Factory Acts in nineteenth-century
Britain. Even where a comprehensive system o f social legislation
exists, however, basic problems remain. By all accounts it is no
m ore pleasant to work in a Soviet or Chinese factory or mine,
than it is in one in a capitalist country. T he richest countries have
such problems as urban decay and large num bers of people on or
below the poverty line. Nevertheless it is mainly in these countries,
where people are on the whole reasonably well off, that there is
most criticism o f m odern technology.
T hat industrialization creates as many problems as it solves
tends to be hidden when attention is concentrated on the indices
of industrial production or of national income. This means that
‘success’ cannot easily be m easured in quantitative terms; but it is
even m ore difficult to m easure it in any other way. In the case studies
which follow, the aim will be to make some overall assessment which
takes into account both the achievements and the social costs.
T he countries chosen represent, in fact, varied paths to
industrialization and different ways of dealing with its social
consequences. Jap an offers itself naturally as the best ‘success
story’ of post-1950 industrialization. Its apparently irresistible rise
represents a growing challenge to the older industrial countries.
China, by contrast, took longer to em bark on an independent course
and when this did happen it was un d er a leadership dedicated to
rapid industrialization on socialist lines. Influenced at first by the
Soviet model, China u n d er Mao introduced some variants of its own
which his successors, in turn, have modified or abandoned. India,
18
after a long period u n d er foreign rule, em erged as an independent
state under a leadership also comm itted to industrialization, but
without the desire or the will to industrialize on the basis of a
nationalized economy, or even to carry out far-reaching agrarian
reforms. Despite its achievements, the Indian model cannot be
counted a success, and the claim to abolish poverty rings as hollow
today as it did in the past. T he Soviet experience, though perhaps
better known than other examples in this book, is also discussed. As
the first planned industrialization it m arked an epoch —however the
results are to be judged. T he very scale of Soviet industrialization
taxes the imagination, while the enorm ous hum an suffering
involved is a condem nation in the eyes of many. Brazil is probably
the least known of the countries dealt with here. Latin America as a
whole tends to be neglected and the rapid surge of industrialization
in Brazil in recent years has not received the attention it deserves.
As will be shown, in a sense Brazil is representative of a group of
countries which have been hospitable towards the giant MNCs and
has depended to a large extent upon them to bring about rapid
economic growth, with results which will be summ arized later.
Nigeria is the largest and economically most viable of the Black
African countries. Although less industrialized than any o f the other
countries selected for study, it has at least m ade a start. Choosing a
capitalist road, and still u nder the influence o f foreign capital, its
experience provides a test case for this course in an undeveloped,
form er colonial country.
Finally, an attem pt will be m ade to examine the experience
and prospects o f the ‘newly-industrializing’ countries as a whole,
including, particularly, South Korea, Taiwan and Egypt. Given the
scope o f the present book this can only be an invitation to further
study along the lines suggested in the bibliography. T he judgem ents
and interpretations it presents m ust be regarded as provisional; on
many issues there can be no definitive view.
19
CHAPTER TWO
Japan: a meteoric rise
T he impressive, indeed meteoric, rise o f the Japanese economy,

since the Second W orld War, which has raised it to the position
of the world’s third largest industrial producer, has been one of
the most significant and unexpected changes of recent history. Its
ability, despite the destruction w rought by the Second W orld War,
to overtake and outstrip the leading industrial countries, to build
up powerful and technologically advanced industries almost from
scratch, and to establish a leading position in the world m arket, has
attracted wonder, adm iration and foreboding.
At a time when older industrial countries were in a state
o f stagnation or decline, Jap an continued to press forward
vigorously in spite of enorm ous expenditure on im ported oil.
T he rapid expansion of the m otor car industry, for example, was
not checked by the post-1974 energy crisis, and Japan established
itself as the world’s leading producer. W orld recession slowed
Ja p a n ’s advance, however, hitting hard some industries which
had over-expanded during the boom. T he economy also suffered
high-level inflation. Nevertheless, Japanese business has taken such
setbacks as a challenge, pushing all the harder to reduce costs of
production, to develop new products and expand overseas markets.
T he appearance of continuous success and the ability to overcome
problems with resolve conceals many weaknesses. T here are
internal contradictions, untow ard side-effects of rapid expansion
and increased vulnerability to external shocks which have to be
examined before the picture can be complete. Nevertheless, the
first task must be to discuss the reasons for Ja p a n ’s success and to
explore the peculiarities o f the Japanese model o f industrialization.
20
THE MEIJI PERIOD
T he elite o f the new regim e which took power with the Meiji
Restoration o f 1868, while not wishing to break with the traditional
way of life, deliberately set out to endow their still feudal agrarian
country with the institutions and economic organization of a m odern
state. T he closing of the gap with the advanced countries was seen
as a question o f national survival. If Japan did not learn from
and emulate the foreigners who were battering at its door they
m ight take over control and tu rn the country into a colony. W hat
this would m ean was clear enough from the experience of other
Asian countries. T he previous regime of the Tokugawas had met
the threat o f W estern encroachm ent with the policy of seclusion:
they simply reduced contact with the outside world to a minimum.
Because of their geographical remoteness from the expanding
frontiers o f E uropean dom ination, this policy worked well enough
for a time. Jap an developed in its own way but, at the same time, fell
fu rth er behind the technologically advancing European countries
and the United States. By the m id-nineteenth century the latter were
intent on bringing the whole o f Asia into their trading network and
they rudely brought to an end Ja p an ’s self-imposed isolation. T he
Tokugawa regime had been obliged to accept unequal treaties which
gave foreign nationals a privileged status in Japan. T he succeeding
regime, whilst being unable to repudiate these treaties, learned a
lesson and m ade a cardinal principle of its policy opposition to
foreign penetration, by adopting the foreigner’s own m ethods and
instrum ents.
T he early decades o f the Meiji period saw rapid m odernization
as Japan consciously incorporated into the traditional framework,
m uch of which was preserved, the attributes o f a m odern society. A
new administrative and legal apparatus was adopted to sanctify the
position of the ruling class and give it m ore effective instrum ents
o f power. T he arm ed forces were completely reorganized and
reconstructed on m odern lines, while retaining and even enhancing
the prestigious role they held in society. A basic infrastructure of
transport, communications and other facilities began to take shape;
a developm ent policy which ensured that the m odern features were
integrated with the society rather than rem aining as enclaves. T he
state strenuously prom oted industrial developm ent and encouraged
the im portation of advanced technologies from the West, both in
the shape of machinery and foreign technicians. A strong economy
was seen as a necessity for national survival. T he agrarian surplus
21
extracted from the peasantry had previously gone, in the main, into
the consum ption of the old ruling class. It was now chanelled into
productive outlets. M arket forces were encouraged and a stimulus
offered for investment by the m erchant cliques and the samurai,
once they had been compensated for their loss o f stipends.
Thus, unlike any other Asian country, Japan entered the
twentieth century u nder the guidance o f a m odernizing elite
committed to building a strong national economy both to preserve
the independence o f the state and also to extend its power and
influence on the Asiatic m ainland and the Pacific area. Nevertheless,
Japanese industrialization was clearly not a home-grown product.
Although economic progress had been visible un d er the Tokugawa
regim e along capitalist lines, it can hardly be claimed that Jap an
would have em barked upon industrialization without borrow ing the
technology and organization o f the West. W hat was significant was
that the existing social and cultural fram ework proved particularly
receptive to change and innovation. Even so, m uch o f the impetus
had to come from above, from a powerful reform ing elite drawn
from the old ruling class, highly nationalist in inspiration, which
saw a m odern economy as the basis for a strong state and also a
firm basis for their own rule.
T here was little in existing models in the last quarter o f the nine
teenth century which suggested that this sort of industrialization
could be carried out through state planning. T he m arket mechanism
and the theories o f economic liberalism found ready acceptance;
they were am ong the factors which accounted for the economic
strength o f the W estern countries. T he role o f the state was not to
ru n the economy but to blaze the trail for ill-equipped or reluctant
entrepreneurs, mostly from the old m erchant class. In the early
stages the state set up and financed industries but disposed of them,
on very favourable term s for the new owners, as soon as it could.
Only those industries directly related to arm am ents production
rem ained u nder state control. Overall, the public sector in Japan
has never been large. Instead, a close working relationship grew
up between the bureaucrats o f the adm inistration and the rep re
sentatives o f the zaibatsu, the giant family concerns, which came to
dom inate the m odern sectors o f the economy. T he Meiji reform ers
thus opened the way for capitalist relations of production and found
a place in the new order for the privileged strata o f the old order
—landowners and samurai —together with the merchants. Agrarian
change was carefully regulated from above, in the face of peasant
discontent, in a way calculated to assist economic developm ent
22
rather than to improve the conditions o f the rural population.
T he form o f guided industrialization which began after the
Meiji reform s had specific features which cannot be explained
from m arket forces alone or from Ja p a n ’s comparative advantage
in the world economy at that time. Given the predom inantly rural
character of Jap an it was inevitable that the textile industries should
play a leading role in the new industrialization. Silk was already
an established industry and raw silk proved to be an im portant
export staple. With abundant labour, a potential hom e m arket and
possibilities for export, it was reasonable to encourage the setting up
of a cotton industry. A complete range of technology was available
from the West, including steam power. M odern factories could be
established at an early stage of the industrialization process, but
there was also traditional small-scale production. For the govern
m ent, with its nationalist aims, it was also o f prim ary im portance to
encourage heavy industry as a necessary basis for political as well as
economic independence. Jap an could enjoy the advantages o f the
late-comer in taking over the technology and organization already
proved in the advanced countries. Besides retaining some control
over strategic industries, the state was also instrum ental in the
setting up of m odern infrastructure, especially transport facilities;
thus the railway, the telegraph and the steamship were already
available. T he relatively high level o f education and literacy, the
m aturity of the pre-industrial economy, the absence o f any strong
prejudices against change in the sphere o f production - indeed, a
bias in the other direction on the part of the military as well as the
bureaucracy - m ade Jap an rem arkably receptive to W estern models
in every sphere. Not that these models were adopted mechanically;
they were assimilated, developed and brought into conformity with
national conditions.
One example o f this was the often-noted persistence of
industrial dualism: the combination o f the old forms of small-scale,
decentralized production, highly labour-intensive, with the new
large-scale and m ore capital-intensive industries using, at first,
im ported technology. T he form er employed the old craft skills,
worked on traditional materials and turned out products used in
frugal Japanese households. T he latter produced not only cheap
textiles and other new products, for which a m arket m ight be found
abroad as well as at home, but also the minerals, capital goods and
arm am ents which were the bases o f economic and political power.
It was this m odern sector, dependent upon im ported technology,
m ore capital-intensive and organized in larger units, which was to
23
provide the thrust for continued industrialization. While part of
the increased output could be absorbed in the hom e m arket, where
there were new dem ands and governm ent requirem ents, especially
concerning the arm ed forces, markets abroad were to become of
growing im portance as expansion continued. T he economic need
for raw materials together with the need for new m arkets fitted in
with the nationalist drive to expand overseas, in order to prevent
Japan being hem m ed in by hostile countries.
By the time o f the First W orld W ar it could be said that the basis
for a m odern industry had been laid in Jap an and that there was
a built-in m om entum towards fu rth er expansion, both economic
and political. Japan assumed an imperialist posture in Asia, having
proved its military strength in the wars against China and Russia.
While being unique am ong Asian countries, and having gained a
position o f equality with those of the West, symbolized by the treaty
with Britain o f 1902, Jap an was still a long way behind the leading
industrial powers in aggregate output and in income per head. T he
mass o f the population were still peasants and, although agricultural
production had been growing steadily, once taxes, rents and other
payments had been met, its purchasing power was low. At the
same time, there was a low-wage labour surplus in the rural areas
which could be tapped by industry. Despite rapid rates o f growth
in industrial production, in total output of steel, coal and consum er
goods, Jap an was still outclassed by the advanced countries. If
Ja p a n ’s military victories had impressed outsiders, they had been
the result o f the disproportionate claim m ade upon resources by
arm am ents production and of the pursuit of political power as a
priority. T he living standards of the masses were still desperately
low, though probably well above those of other Asian countries,
and Ja p an ’s main asset seemed to be its abundant reserves o f cheap
labour power. State policy was concerned with measures to assist
capital accumulation and the benefits went disproportionately to
the rich and powerful. But the Japanese people were frugal and
p art of any additional income went into savings; the ‘dem onstration
effect’ (that is, the impact o f seeing a larger variety and superior
quality o f goods than are customarily available at existing income
levels, thus stimulating a dem and for them) was hardly operative.
W ar expenditure, although in one sense a burden, offered a m arket
to heavy industry and may have helped to lay the foundations for
subsequent industrial growth.
T he close alliance between state and business which grew up
in the Meiji era, m arked a departure from liberal capitalism and
24
resembled m ore the mercantilist policies which some European
countries had employed in their own pre-industrial stages or the
organized capitalism which was taking shape in Germany. An
im portant result was that it enabled Jap an to acquire and preserve its
economic autonom y as well as its political independence. T he hom e
m arket was not flooded with im ported goods and by the early years
of the twentieth century cheap textile exports were highly successful
in Asian markets, foreshadowing what was to follow. Although
there was some recourse to foreign capital, industry was mainly
financed through governm ent borrowing. Policy from that time
on was designed to ensure that foreign capital could not dom inate
industry. T he nationalist goals of the rulers, with which business
leaders concurred, ensured that the country not only m aintained its
political sovereignty, ridding itself of the unequal treaties by 1899,
but also prevented it from falling victim to economic imperialism.
T o be sure, the economy became increasingly integrated into the
world m arket, but this was on terms which, as far as possible, were
determ ined by national interests as perceived by the state-business
alliance.
T he decades of Meiji (1868-1912) were undoubtedly of great
formative im portance for the economy o f m odern Japan. By the end
of the period it was well launched on the road to industrialization,
and it had already taken a form which was distinctively Japanese.
While preserving many of the original social and cultural traits which
had characterized traditional Japan, a m odern sector had been built
up under the aegis o f a particular form o f organized capitalism in
which nationalism and militarism played a central role. Much of
the old industrial structure had survived or even been extended.
At the same time, there was large-scale production and giant firms
and banks played a dom inant role in the m odern sector.
Traditional features, such as close-knit family ties, the depend
ence of women on fathers and husbands, the habit o f obedience
to social superiors and of disciplined cooperative labour, were
turned to advantage in the creation of a labour force and the
organization of industrial production. However, similar traits are
to be found in societies which rem ained backward. T he relatively
high level of literacy before the Restoration and the attention paid
to expanding educational facilities assisted the dissemination of the
new technologies and the process of learning and assimilation which
went on. T he Japanese proved very willing to go to school with
the foreigner, displayed enorm ous curiosity about foreign models,
and employed foreign experts and technicians to help found new
25
industries. All the same, they carefully avoided dependence and
m aintained their own culture. At an early stage o f the borrowing
process, improvements were m ade to borrow ed technology and
resourceful entrepreneurs were responsible for innovations and
improvements which adapted forms of technology to their own
national environm ent. A tradition was thus established which was
not that of slavish imitation.
While Japanese society constituted a hierarchy, it did allow for
some mobility through educational achievement and the acquisition
o f wealth. M oreover, once adaptability to new influences and a readi
ness to learn had developed, a habit was established which ensured
that new developments abroad would be closely followed and quickly
adopted if they prom ised to suit local needs. Since Jap an owed so
m uch to foreign models from the start of her industrialization,
this was perhaps a natural response. Nevertheless, the foreigner
was kept at arm ’s length while the maximum was extracted from
foreign contacts. It was a direct reversal o f the seclusion policy in
appearance whilst conserving m uch o f its motivation underneath.
ECONOMIC EFFECTS OF THE FIRST WORLD WAR
T he First W orld W ar acted as a forcing house for the industriali

zation o f Japan. Although formally a belligerent, h er part in the war
was a very m inor one. Meanwhile, exports from the main belligerent
countries were greatly reduced or cut off altogether, especially in
the Far East, and Japanese goods were able to fill the gap. It was
an excellent chance for m anufacturers whose hom e m arket was still
relatively small. Industrial production and foreign trade increased
four-fold during the war. Hom e production had to be stepped up
to take the place of im ports into Japan. At the same time, a larger
m arket opened up for the underdeveloped countries o f the Pacific
area, who were already am ong Ja p a n ’s trading partners and with
whom she was able to extend her economic ties still further. With
booming trade, investment at a high level and profitability good, the
war proved to be a prosperous affair for business. For the mass of
the people, however, there were new hardships. Prices rose about
two and a half times, outstripping the wage rises of factory workers,
many of whom were new recruits from the countryside. Price rises
hit all consumers including those in the rural areas. T here were
serious social strains and unrest, culminating in the rice riots o f
26
1918. Meanwhile Japan m ade territorial acquisitions in the Pacific
area at G erm any’s expense and consolidated her position on the
mainland. With the interest o f the great powers focused on Europe,
Ja p a n ’s external position improved. At the same time, the favourable
balance of payments enabled foreign debts to be cleared, and Japan
became a creditor country. In short, the war benefited Jap an both
directly and indirectly and when it was over she was apparently
poised to make fu rth er gains.
As it happened, Jap an was affected by the economic difficulties
of the post-war period and she faced some unexpected problems.
T he war boom, after all, had been comparatively short-lived. It left
behind a great weight of industrial capacity built up during a period
of unlim ited dem and and rising prices. Much o f Ja p an ’s increased
foreign trade had been with prim ary producing countries now
afflicted with falling prices and lower incomes. Overseas dem and
shrank at the same time as Ja p an ’s competitors were coming back
into the field. Hom e m arket dem and failed to rise to take up the
slack. In short, Ja p a n ’s economy suffered particularly severely from
the slump in the capitalist world in the early 1920s and the situation
was m ade worse by the devastating Tokyo earthquake o f 1923. T he
main reaction of industry to these adverse changes was to pursue a
policy of concentration and rationalization. T he tendency for the
m odern sector to be dom inated by a small num ber o f giant firms
was thus intensified, consolidating the position of the zaibatsu.
Industrialization was accelerated by war and, despite these
setbacks, continued steadily through the inter-war years. T he
contribution o f industry to national income overtook that of
agriculture and a m ore diversified industrial structure took shape.
In the m odern sector were located the rapidly growing cotton
textile and light m anufacturing industries, which used machinery
and steam or electric power. These industries were to make
the m ajor contribution to exports during the period, competing
successfully with the British and other exporting countries with
low-priced products. Meanwhile, the decline o f the export of raw
silk, a foreign exchange earner, especially in the depressed 1930s,
emphasized Ja p a n ’s need to expand the export o f m anufactures.
T he other m ajor com ponent o f the m odern sector consisted of
heavy industries, notably mining, iron and steel, shipbuilding and
engineering. Most o f these industries used im ported raw materials
or energy sources. Although some foreign firms set up branch
plants, the main industries were controlled by the zaibatsu and, in
the case of some arm am ents production, by the state. T hus there
27
was little direct foreign capital investment. T he zaibatsu and the
banks were able to raise capital for expansion and for the setting up
of new branches o f industry. They also provided a certain m easure
of integration between the diverse enterprises which m ade up each
zaibatsu, or Japanese-style conglomerate.
W hen Jap an entered upon a hectic course o f imperialist
expansion in China, after 1931, the war-related industries, which
used advanced technology, began to grow rapidly. As in the earlier
period, industrial dualism continued; much industrial production
was carried on in small- and medium-sized units still organized in the
old way and using m uch hand labour. T he gap between enterprises
of this sort and the organized large-scale industries tended to widen
from the 1920s onwards, especially in productivity and wage levels.
However, the two sectors were not altogether separate and distinct.
Large firms often found it economical to have parts and components
m anufactured by small sub-contracting firms; this reduced their
overheads and gave flexibility when m arket dem and was variable.
Some small firms were able to buy up second-hand machinery
cast off by the larger ones. Many were, in any case, producers of
traditional articles and specialities for the home m arket and only
needed simple machines such as sewing machines or lathes. Some
cheap, often shoddily made, goods found their way onto the export
m arket, giving Japanese products a bad reputation.
CONDITIONS OF LABOUR
Generally speaking, the continued existence of industrial dualism

was an indication of a lack of m aturity in Japanese industrialization
up to this time. T he dualism was also reflected in the peculiarities of
the Japanese labour m arket, some o f which were to be held up almost
as a model in the light of Ja p an ’s later industrial success. As had
been the case since the very start of industrialization, many factory
workers were women and girls recruited from the villages or from
urban working class families. T heir pay was low and conditions of
work were poor, with adverse effects on their health. In any case, it
was assumed that they would only work for five or six years before
marriage, and there was thus a constant supply o f fresh female work
ers. Male workers were required in m ore highly skilled or arduous
m anual jobs, as well as in a supervisory capacity where women were
28
employed. As heavy industry grew and technology became m ore
advanced, employers required a trained and stable labour force of
adult males. Traditionally, m uch factory labour had been recruited
by m iddlem en and worker loyalty was often to these labour bosses
rather than to the factory owner. This system of recruitm ent proved
unsatisfactory in the m ore highly-organized, large-scale industries
which had become increasingly im portant since the earlier years
of the century. Employers in these industries required a cadre of
trained and skilled workers who would be loyal to the firm rather
than to the labour boss or to a trade union, so far as wage bargaining
was concerned.
W hat evolved in the m odern advanced industry was a system
of seniority which virtually guaranteed lifelong employment to
the loyal male worker. He was recruited on leaving school, or at
the apprentice stage, with the prospect of regular progression up
the wage scale until he reached his m aximum capacity; as he grew
old he m ight be moved to less exacting work and then retired on
a small pension. While employed, he received certain social and
medical benefits and, ideally, became a ‘company m an’. Similar
schemes were used for m anagerial personnel coming out of the
institutions o f higher learning. This kind o f paternalism, which
linked the employee to the enterprise in a corporate relationship
lasting a lifetime, was not unknown in Europe and America, but
in Japan it assumed a m ore systematic form and seems to have
been preferred by m ore firms. While it had disadvantages from
the em ployer’s point of view - it might add to his overheads or
make it difficult to get rid of dead wood - it ensured a stable, loyal
and subservient labour force, too afraid of losing their accumulated
benefits to be attracted to militant trade unionism. In any case,
lifelong employment continued to be confined to the basic core of
m ore highly trained and qualified male workers. It did not generally
apply to women, who might make up over half of the work force in
many enterprises, nor to the less skilled, tem porary workers who
m ight also form a considerable part of the labour employed and
who would be the first to be laid off in time o f slump.
It is possible that Japanese workers entered m ore readily into
such lifetime contracts than their counterparts in other countries
because the system fitted in with existing social customs: the rela
tionship between father and sons in a family or between superiors
and dependents in the feudal order. All kinds of sociological and
psychological explanations have been offered for the peculiarities
of Japanese labour relations. It may simply have been that the
29
developm ent of trade unions lagged behind and was im peded by the
law. In any case, the m ore skilled and better-paid Japanese worker
often became a ‘company m an’ and his proletarian status and class
consciousness were overshadowed by the relative job security which
he enjoyed, as com pared with the majority o f those competing for
jobs.
ECONOMIC CRISIS
T he Japanese economy underw ent a series o f troubles during the

1920s, which m ade for instability. Exports fell o ff in the face of inten
sive trade competition and protectionism abroad, and, with the yen
over-valued, did not exceed their 1919 peak for another ten years.
Prices tended to fall, profits were squeezed and there were many
bankruptcies. Big business responded by fu rth er rationalization, by
price m aintenance and by increased interest in foreign markets and
colonial expansion. In 1927 there was a financial crisis and many
banks collapsed, thus enabling a smaller num ber of the larger and
sounder banks to secure a dom inant position. In 1930-31 Jap an
was hit by the onset; o f the world economic depression with a sharp
fall in prices and in exports. T he overseas m arket for raw silk —for
long a useful foreign exchange earner —contracted disastrously.
H igher tariffs in the United States and E uropean countries hit
the export trade. Surprisingly, Jap an was able to overcome these
setbacks within a few years, becoming the only capitalist country to
experience rapid growth despite the depression. Two main reasons
can be given for this. On the one hand, in a period of worldwide fall
ing prices and contracting trade, cheap Japanese exports o f textiles
and light m anufactures successfully penetrated m arkets previously
held by the older industrial countries, notably Britain, which were
now high cost producers. O n the other hand, especially from 1936
onwards, governm ent orders for war materials stimulated the
expansion of the heavy industries. Japanese capital was meanwhile
active in prom oting developm ent in the colonial em pire, especially
in industrializing the newly-acquired territory o f M anchuria. This
was facilitated by supplies o f cheap labour, borrow ed technology
and a colonial expansionist policy which m ade it possible to carve
out a protected m arket sphere in East Asia. This led to a dem and
for plant and equipm ent which encouraged fu rth er investment at
30
home, while the colonies were also able to supply food and the raw
materials of which the m other country was seriously short.
Economic crisis and war mobilization thus created abnorm al
conditions during the 1930s to which the governm ent and big
business responded by fu rth er measures of protectionism and
concentration. W hether or not the zaibatsu and business generally
prom oted the aggressive expansionist policy of the 1930s and
1940s, or were forced reluctantly to acquiesce in decisions m ade by
the military and imposed upon the governm ent, there is no doubt
that they prospered at a time when the rest o f the capitalist world
was plunged into its worst-ever depression. In addition, a num ber
o f new business groupings, the so-called new zaibatsu, were form ed
to take advantage o f opportunities offered by overseas expansion
and war dem and. Increasingly, industry was dom inated by a few,
powerful giant firms, which enjoyed a privileged relationship with
the governm ent and worked closely with it and the arm ed forces to
increase production for war purposes. From 1937, war mobilization
moved into high gear; there was some contraction o f output in
light industries such as textiles, while the industrial effort was
concentrated on iron and steel, arm am ent production and naval
shipbuilding. As Japan was fighting a m odern war, where the
standards were set by the most advanced economies, increasingly
sophisticated material was required: aircraft, tanks, communications
equipm ent, range-finders, bomb-sights and automatic weapons.
WAR AND THE GROWTH OF NATIONALISM
T here is an obvious continuity between Ja p an ’s wartime experience

and what had gone before; there had, after all, always been a close
association between economic developm ent and national-military
aims. T he question was that until the 1930s the latter had been
pursued without an open clash o f interests with the W estern
imperialist powers. As an em pire was carved out o f Chinese
territory and her rulers dream ed of dom inating the whole Pacific
area, the other world powers could not rem ain unconcerned and
a clash was probably inevitable. No doubt the m ore conservative
elements in the ruling class in Tokyo were only reluctantly pushed
into what was clearly a gamble by the militant nationalists and
military adventurers. T hat they accepted expansion on the Asiatic
m ainland, knowing that this would m eet with the disapproval of
31
the W estern powers, and em barked on the gamble, was not only a
function of an internal power struggle; it also reflected the pressures
on Jap an o f the world economic crisis and, indeed, o f the pent-up
contradictions o f its developm ent since the Meiji Restoration.
Industrialization from that time until the surrender in 1945
has to be seen in a context o f resurgent nationalism, in which
the preservation o f sovereignty came to be equated with military
strength and expansionism. This gave the military, with its base in
the countryside and the traditional ruling classes, a central role in
the state and in the nation as a whole. At the same time, the
industrialization o f Jap an enabled the military to operate from a
new basis of power. An im portant part of this process was bound
up with governm ent military spending intended to keep Japan
strong and this policy was welcomed by the zaibatsu. Patriotism and
profits were able to go hand-in-hand while the hold o f the military
was strengthened. Once the economy was hit by the world crisis of
the 1930s, following the difficulties of the previous decade, it was
tem pting for influential sections o f the ruling class to seek a way out
in the pursuit o f Ja p an ’s manifest destiny in Asia for which the way
had long been open. F urther imperialist expansion m eant the risk
of war with the United States and Britain; it was a war which, on
sober calculation, Japan could hardly hope to win except by a speedy
and successful first strike. Doubtless there were alternative courses,
favoured by the m ore prudent, but opposition and dissent were
stifled and suppressed un d er the authoritarian regime sanctioned
by the emperor-system, itself a product of the Meiji Restoration.
Once the conflict had been begun by the attack on Pearl H arbour
in December 1941, it was surprising that Jap an did so well both on
the battle fronts and in organizing her war effort. This was done
by giving priority to the arm ed forces, both by increasing total
output and drastically reducing civilian consumption. T he main
problem facing the planners, and in a sense this was what the war
was all about, was dependence upon im ported raw materials and
fuel. T he sea-lanes were Ja p a n ’s vulnerable lifelines and once they
were cut the economy could not survive. T he initial successes, the
over-running o f m uch of the Pacific and the short-lived realization
o f the grandiose G reater East Asian Co-Prosperity Sphere encour
aged the illusion that this could be averted.
W hen American industrial potential was turned to war produc
tion, Jap an was revealed as a pygmy by comparison. At its peak,
her arm am ents production was no m ore than one-tenth o f that
achieved in the United States. Once the military reverses cut off
32
overseas sources o f supply, industry was starved of raw materials
and production slowed down. No plans had been m ade for a long
war and arrangem ents for the allocation o f scarce materials became
increasingly chaotic. T he war revealed the incomplete nature of
J a p a n ’s industrialization. At least half the population was still
employed in prim ary production. This limited the recruitm ent
o f labour to war industries and, despite this, calorific intake fell
almost to subsistence level for a large p art o f the population.
American bombing, and the final h o rro r o f the atomic bombs,
furth er disrupted the economy and aggravated the hardships of
the civilian population.
W hen the Allied occupation began, the economy was in a
desperate state. Food and raw materials were running short and
a surge of inflation began. T here had been some destruction of
industrial plant; m ore serious was the lack o f raw materials and
energy supplies and the fact that m uch industrial capacity had been
turned towards war production so that a period of reconversion
would be necessary before there could be a revival of the economy
on a peace-time basis. Japanese business leaders were anxious to
save what they could from the wreckage and saw their best course
in cooperation with the Occupation authorities. American policy
began with the assum ption that there would have to be far-reaching
reform s, including a m ajor restructuring o f the economy, to prevent
fu rth er Japanese aggression. In the event, however, the defeat and
Occupation represented a turning point in Japanese history almost
on a par with the Meiji Restoration, clearing the way for the great
surge in industrialization which was to elevate Japan into third rank
am ong the economies of the world.
At first Occupation policy, determ ined as it was principally by the
United States, conceived o f a reduction in Ja p an ’s industrial power
as a way of preventing fu rth er aggression, and some plant was
dismantled for reparations purposes. At the same time, measures
of democratization were proposed to underm ine the power of those
held responsible for past warlike policies: the military, big business
and the land-owners in particular. Although democratization was
aimed precisely at the old ruling class, there was no revolution
and no general redistribution of property. In fact, the ruling class
retained its overall position in the economic as well as the social
and political fields. Symbolically, the E m peror Hirohito rem ained
head of state, and continuity was preserved. However, the arm ed
forces were abolished and Ja p a n ’s military capacity was reduced
to a small defence force. Some war plants were dismantled, while
33
others built for military purposes were m ade available for other
forms of production. Considerable effort went into the attem pt to
break up concentrations of economic power, notably the zaibatsu.
Amercian policy-makers were deeply divided over this issue and as
the international political situation changed during 1946—47, with
growing tension between the United States and the Soviet Union
and the threat of revolutionary movements in Asia, policy towards
big business became m ore lenient. In effect, the attem pt to impose
a liberal, free-m arket capitalism through a form of anti-monopoly
legislation was abandoned. Zaibatsu dissolution was not seriously
pursued and, although some changes did take place in business
organization, there was little change in control. It came to be
accepted by the Occupation authorities that U nited States interests
required an economically viable Jap an and that this could only be
brought about through cooperation with big business in sponsoring
an industrial revival.
Since the American policy-makers were firmly opposed to a
social revolution which would have unseated the existing ruling
class, there was no real alternative but to cooperate with it. T he
idea o f a de-industrialized Japan, put forw ard in some quarters,
was unrealistic as it would have condem ned the population to
perm anent poverty and increased the danger o f revolution. In the
early years of the Occupation, Japan was economically dependent
upon the United States, particularly for food supplies and raw
materials. T here seemed little prospect that she would become a
serious competitor, even when the Occupation came to an end in
1952. Recovery from the war took some years and it was not until
the mid-1950s that industrial production recovered its pre-1941
level. W ar damage had wiped out perhaps a quarter of Ja p an ’s
wealth; almost all the m erchant fleet had been lost, and shipping
was Ja p an ’s vital link with raw material supplies and markets.
Repatriated citizens from the colonies and occupied territories,
num bering about six million, competed for jobs and housing. T he
arm ed forces had been demobilized and there were all the problems
of rehabilitation and reconversion. In a situation of general penury,
the black m arket flourished. Instead o f being self-sufficient in food,
Jap an became dependent upon American agricultural surpluses to
m eet basic needs. T here could be no economic recovery, in any case,
unless industry could once again obtain the im ported raw materials
upon which it depended and until exports had recovered in order
to pay for them. Economic recovery m eant reinstatem ent in the
world market.
34
RECOVERY
Yet, although the prospect may have seemed very bleak in the
early post-war years, and economically Japan had been driven
down to rock-bottom, the very extent of the decline offered
prospects for the future. T he masses of impoverished unem ployed
and underem ployed people, hoping to restore shattered lives, m ade
up a large potential, mobile labour force. Industrial plant could be
renovated and turned over to peace-time production. Contact with
the United States brought immense changes and stimulated the
desire for material improvement, encouraging the appearance of
entrepreneurs. In the top levels of the adm inistration and business,
some of the old guard had been swept away in the turmoil. T heir
place was taken by new men, anxious to see Jap an restored to its
true place in the world, open to new ideas, and ready to learn from
the occupant.
Meanwhile, in 1946, in accordance with Occupation policy, a
m ajor land reform was initiated aimed at abolishing the allegedly
militaristic landlord class by transferring land ownership to the
peasants, almost half o f whom rented their land on some kind
of tenancy. Absentee ownership was abolished and a ceiling was
set upon the am ount of land which could be held by a cultivator.
As a result of the agrarian reform , about four million peasant
households acquired new land and the proportion o f cultivated land
held un d er tenancy was reduced to 10 per cent. T he big landowner
disappeared from the rural scene with only a limited am ount of
compensation. T he results of this land reform were far-reaching.
Whilst consolidating a class of peasant proprietors, now able to retain
a larger proportion of their product than before, it also loosened
the ties of many villagers to the land. T here was no longer much
land available to rent and the peasant cultivators mainly depended
upon family rather than hired labour. T he fortunate peasants who
now acquired land, or who no longer had to pay rent for it, could
increase their purchases of consum er goods, as well as inputs for
agriculture such as fertilizers and machinery.
Reform thus tended to have a two-fold action: it expanded the
hom e m arket for industrial goods o f the kind consumed by rural
households, and it released labour for employment in the cities as
it became available with economic recovery and expansion. T he
limited size of the hom e m arket, with its large low-income, rural
component, had always been a factor shaping the developm ent of
Japanese capitalism, turning it towards external expansion. At the
35
time of the reform , it is true, there was already a labour surplus
rather than the reverse; over the longer period, however, it provided
a reservoir o f labour for continued industrialization in the 1950s
and 1960s and without which industrialization would have been
considerably impaired. It has to be rem em bered that at the end o f
the war the economy was still only partially industrialized. A pproxi
mately 50 per cent o f the occupied population was still employed on
the land. This was the main labour reserve of the industrialization
process, when it began in earnest again in the 1950s. Between
1950 and 1970, the prim ary sector shed about ten million
people, while employment in m anufacturing industry rose from
six million to almost fourteen million. Em ployment in electricity,
gas, water, transport and communications rose from three million
to over seven million. A considerable re-shaping of the contours
of Japanese society took place in the course o f this massive shift.
T here was fu rth er large-scale urbanization of a country which had
hitherto been largely rural. T he newcomers to industrial and urban
employment had known only frugal living standards before; they
were raw recruits with no tradition of organization and therefore
excellent material for the industrial upsurge o f the period.
Despite the effects o f the war and the changes brought about
by occupation policy, Japanese capitalism preserved many pre-war
features which dated back to the Meiji era. Control of organized,
large-scale industry continued to be highly concentrated and the
attem pt to dissolve the zaibatsu had been abandoned. T he same firms
and banks and, to a large extent, the same personnel, rem ained in
charge. T he reshuffling which did take place brought in younger
and m ore pushing men, inspired by a vision o f restoring Ja p a n ’s
position in the world by peaceful conquest, and who accepted that
this had to be done in cooperation with the United States. Close rela
tions between business and the administration had been m aintained,
and there was no question o f establishing a laissez-faire economy.
T he question was where the line between the two should be drawn,
the assumption being that the state should encourage, rather than
hold back, the dynamism of the private sector. It had always been
the role o f the state to assist industry with the appropriate policy at
hom e and abroad.
As we have seen, Jap an entered the post-war period as a follower
country, still only partially industrialized. As well as large labour
reserves, available for transfer to m ore productive activities, it also
had a large potential hom e m arket o f some one h u ndred million
people. Many of the techniques long incorporated into the industrial
36
structure in the United States and other countries had hardly been
applied as yet. T here was, for example, no m otor car industry
to speak of and little production o f m odern consum er durables.
Borrowing foreign technology had always been characteristic of
Japanese development; with a war-shattered economy to be rebuilt,
there was now m ore opportunity for it than ever. T he field for
potentially profitable investment seemed unlimited.
Meanwhile, the whole capitalist world, from the early 1950s,
entered into an unprecedented long-term phase o f expansion and
prosperity which could only be favourable to a Jap an aspiring
to become the workshop o f Asia and, indeed, the entire world.
Economic aid in the form o f capital and technology flowed in
from the U nited States. Once expansion began, however, it tended
to feed on itself with a very high rate of reinvestm ent o f profits.
Initial capital for new projects came from the already sophisticated
banking and financial system. T here was a high propensity to save,
but significantly there was a wide gap between productivity gains
and the rewards of labour. A politically conservative regime and
the weak bargaining power of the trade unions in the early 1950s
contributed to the creation of exceptionally favourable conditions
for the accumulation of capital. Jap an was poised to astonish the
world; perhaps even those whose decisions had helped bring about
the new surge of industrialization.
W hat was rem arkable about the new phase which began in the
1950s was that growth took place at a rapid rate and was sustained
for so long a period. Although at various times a slow-down or halt
appeared likely, especially in the 1970s u nder the influence o f the
energy crisis and general world recession, the expansion continued.
Expansion survived the Nixon shock o f August 1971 and the
oil shock of 1973-74, despite Ja p a n ’s dependence on im ported
petroleum . W hen the growth o f the other leading countries flagged
in the late 1970s, Ja p an ’s industrial upsurge continued and further
m arked successes were scored with export products in the highly
competitive world markets. By 1980, when the m ajor American
car m anufacturers were all making losses, Jap an had become the
world’s largest m otor vehicle m anufacturer, selling 1.8 million cars
in the United States. Japanese products did not sell on cheapness but
on quality, finish, reliability and high technology. This was true in
the car m arket and also in such fields as consum er electronics and
cameras. Japanese products held the leading position in many fields.
T he shipbuilding industry had grown to make good war-time losses
and established itself as the largest in the world on the construction
37
of super-tankers and bulk-carriers. Like some other sections of
heavy industry, however, it did suffer from recession in the 1970s.
By the early 1960s, Ja p a n ’s rapid resurgence had begun to
attract the attention of outside observers who saw it as one o f the
most astonishing success stories o f all time. Now, after a fu rth er
two decades of sustained growth, in contrast with the slow-down
or stagnation of other industrial countries, the seriousness of the
Japanese challenge is apparent to all. T he sheer weight of Japanese
competition has caused the collapse o f some foreign industries, such
as the m anufacture of m otor cycles in Britain. T he same thing seems
to be happening with m otor cars, colour television and audio-visual
sets. Japanese branch plants have spread from Asia into the United
States and Europe.
At one time, Japanese experience m ight have been seen
principally as a useful model for the ‘developing’ countries. Now
it is m ore a case of w hether the older, advanced countries will not
have to learn from Jap an if they are to grapple successfully with
their own problems. For many, Japanese successes have seemed to
be little short o f miraculous and every aspect of Japanese society
and culture has been scrutinized in an effort to discover the secret.
Journalists describe the atm osphere in Japanese factories where
busy and contented workers cooperate eagerly with solicitous
m anagers in a joint effort to prom ote the firm ’s success. Bureaucrats
and businessmen are depicted as working harm oniously together
to prom ote growth industries and wind down declining ones for
the greater glory, and prosperity, o f the nation. T he sogo shoshas
(the general trading companies unique to Japan) are shown as
linked to the markets o f the world, with intricate communications
networks which the intelligence services of other countries might
envy, com m anding trade flows with the precision o f a military
operation. T he frugal Japanese are praised for devoting such a
high proportion of their income to savings, m aking it possible
for industry to m aintain a high investment rate in new plant and
machinery. T rade unions cooperate with m anagem ent, and workers
in a trade dispute go on working with a label in their button-hole
rather than walk out. According to some, the secret is to be found
in a peculiar psychological m ake-up derived from past patterns of
social living. It is said that the Japanese are happy to work as a group
and accept their role, be it ever so humble. Best-selling books and
frequent newspaper articles drive hom e the same message: Japan
is seen as a challenge, but also as a model; perhaps the alternative
face of capitalism if it is to survive into the twenty-first century. An
38
attem pt has to be m ade to distinguish fact from fable in what tends
to become a stereotype.
REASONS FOR SUCCESS
It is first necessary to demystify the economic history of m odern

Japan. Its rapid, and in term s of material output, highly successful,
industrialization, can be explained on strictly economic grounds.
Jap an was able to take advantage of being a late-comer, both in the
early preparatory stages of industrialization un d er Meiji and, once
m ore, in the period from 1950. Sustained high rates of investment
in m odern, im ported technology, together with abundant supplies
of labour u n d er conditions where capital was able to appropriate a
m ajor proportion of the gains in productivity, ensured continuous
growth as long as markets could be found for increasing production.
T he high rates of investment ensured a m arket for capital goods
and in tu rn extended the m arket for consum er goods industries
and services of every kind. Assisted by world conditions, such as
the Korean W ar boom and then the general expansion o f world
dem and in precisely the type of commodity Ja p an ’s industry was
able to supply, the economy was locked into a virtuous circle. Such
a growth pattern was by no means unique; it was a classic case of
what Marxists call ‘expanded reproduction’, the interesting question
is why it went on for so long. It has to be added that growth is an
imperative. T he consequences o f a halt could be very severe and
could have cumulative effects throughout the economy, causing
serious financial problems to an industrial and commercial structure
based upon a pyram id o f credit. For that reason, as some observers
have pointed out, the Japanese economy resembles a cyclist who
m ust continue pedalling or risk falling off.
W hen all this has been said, however, there remains the
question o f the specifically Japanese elements which conditioned
the way in which economic forces worked themselves out. T he
cultural and social environm ent, if not exactly designed to prom ote
industrialization, posed no obstacles to it o f the kind found, for
example, in the Indian caste system. T he reform s carried out in the
Meiji era had deliberately cleared the ground o f left-overs from the
past which m ight have im peded m odernization as carried through at
that time. Institutions necessary for industrialization were adopted
39
and an infrastructure built to prom ote economic development.
T hen, and later, it is true, resources were diverted into expansionism
and war: but not without some spin-off which may have assisted
industrialization. T here were no religious or caste barriers to the
pursuit o f material success, though this was not so m uch openly
avowed, as seen as the result o f working for the national interest.
T he pursuit of nationalist goals harm onized with the successful
operation o f a capitalist m arket economy which strengthened and
enriched the business class. The strong state (appealing to traditional
elements) and the healthy economy (for the m odernizers) were goals
which could comm and a wide consensus of approval. Jap an had to
overcome its inferiority to the foreigner by adopting his technology
and doing better; it was a simple but compelling ideology.
T he Japanese economy developed highly capitalist forms,
but governm ent policy played a vital role from the start
of industrialization and continues to do so today. T here was
no intention o f establishing a state-run economy, but rather a
mercantilist-style symbiosis of state and private enterprise. In
practical term s this m eant an alliance, and one which did not
always ru n smoothly. Different and often conflicting interests had
to be harm onized through the state. In the 1930s, for instance, the
influence of the military and part o f the old ruling class geared the
economy to expansionist aims. Some sections of business may have
had doubts, foreseeing the dangers, but they hardly dared to oppose
what was a patriotic course. After the war, similar alliances and
compromises had to be made; it was generally accepted that the state
had a positive role to play in coordinating economic development,
laying down national guidelines and assisting business expansion.
It did not always play its role very well and, in fact, played it best
when it had least to do.
Post-war Japan was not exactly a classic free m arket economy,
but it was highly favourable to business enterprise and capital
accumulation. T he state, and m ore generally the political set-up,
encouraged this state o f affairs. T he two economic ministries —the
Ministry o f Finance and the Ministry of International T rade and
Industry —had (and have) a considerable influence upon overall
policy. O ther ministries - Agriculture, Construction and T ransport
and Communications - are influential in their own spheres. In
addition, there are other governm ent bodies, notably the Economic
Planning Agency (from 1955 onwards), which draw up perspective
plans for the m edium and long term . American specialists on Japan,
upon whom we depend a good deal for our knowledge of the
40
working o f the system, tend to play down the role of the state for
ideological reasons. On the other hand, the popular impression of
Jap an Inc., functioning efficiently u nder the harm onious direction
o f an alliance between bureaucrats and businessmen is equally
suspect. D epending on the point o f view, Jap an can be depicted
either as an example of free-m arket capitalism or as an economy
guided by a benevolent and omniscient state.
In fact the exact situation eludes a simple definition. Certainly
economic policy has had, and continues to have, a profound effect
on the developm ent of Japanese trade and industry, and the role
o f the Ministry of International T rade and Industry, while it
may be exaggerated in some accounts, has been decisive. T he
Ministry works closely with business, itself highly organized in
several associations, as m uch in an inform al way as through legal
enactments. T he top m en in business and administration share a
common social and educational background. T ogether they have,
in a sense, inherited from the generals and admirals of the past
a mission to make Japan great and prosperous, though now by
peaceful conquest.
Relations between the different ministries, and those between
the state and industry, are not always harm onious. N or are the
ministries at all infallible. Planners have not had real power to shape
the course of economic development; the m ajor economic decisions
have mostly been taken by business. On the other hand, business has
looked to governm ent for support where necessary; it assumes its
backing and expects that its own activities form part of a concerted
economic policy for which the state is responsible. Leading ministers
have been solicitous o f business interests. Japanese still recall with
bitterness General de Gaulle’s description of Prime Minister Ikeda
as ‘a transistor salesman’. T he state is expected to protect the home
m arket, to support the export drive, to prevent foreign capital from
getting too m uch of a foothold and to assist industries in difficulty.
T he total outcome has been a relationship specifically Japanese,
elusive and ambiguous, pragmatic rather than doctrinaire. T he
state sector p roper remains smaller than in most other capitalist
countries, but the state’s influence seems wholly pervasive. It is
doubtful w hether Japanese industrialization would have proved
so successful had it not been for the constant support o f the state
bureaucracy.
W hen the early steps were being taken towards recovery and new
industrial resurgence in the early 1950s, this support from the state
was particularly necessary. T he many crucial decisions m ade at this
41
stage helped to shape the future course o f developm ent and, by acci
dent or design, ensured rapid growth. For instance, decisions had
to be m ade about which sectors of industry should be encouraged
or prom oted. Ja p a n ’s pre-war industrial pattern and comparative
advantage at that time would have suggested a concentration on
textiles and light consum er goods industries. However, an analysis
o f trends in world trade, and observation o f the industrial structure
o f m ore advanced industrial economies, showed that the m arket for
these industries would be unlikely to expand rapidly. With rising
incomes, world dem and was changing, with such commodities as
consum er durables coming to the fore. Industrial developm ent was
also creating a dem and for machinery and Jap an had, of course, to
renew its shipping tonnage almost from scratch. Thus the decision
was m ade to direct investment towards future dem and, to adopt
a dynamic view of comparative advantage and to prom ote highly
capital-intensive, high-technology, ‘heavy’ industry (the Japanese
classification including not only means of production industries
but also the consum er goods’ industries based upon advanced
technologies). These were, then, the industries whose products were
expected to be in future dem and. This did not m ean that the m ore
traditional, or light, consum er goods industries were neglected; it
was rather that they could not be counted upon for future sustained
growth, especially export-led growth.
Decisions o f this kind, which m ight not have been m ade had
m arket forces been allowed to determ ine the allocation of resources,
seem to have been crucial for future success. They assumed state
support for new investments and especially for the developm ent of
new technologies im ported from abroad. T he way was also cleared
for the entry of a new generation of entrepreneurs in fields such as
electronics, cameras, m otor cycles and other products which were
soon to flood the m arkets o f the world.
From the 1950s, therefore, a new heavy industrial complex
began to take shape, changing the very landscape around J a p an ’s
great cities. Iron and steel, shipbuilding and heavy engineering,
building on a pre-war basis, took a leading role. They could equip
other industries in Japan and in a period o f world boom there
was a constantly growing m arket overseas. A petrochemical and
oil-refining industry came into existence. A whole new range of
m ore labour-intensive industries producing ‘new’ consum er goods
came on the scene and m ade their products - cameras, optical
instrum ents, transistor radios, TV sets, m otor cycles and, m ore
recently, m otor vehicles - famous throughout the world.
42
As in many fields Japanese industry was a relative newcomer,
its machinery embodied technology often in advance o f that of its
competitors. W here success in foreign markets enabled profits to
be increased they were ploughed back into a continuation of the
process. While the hom e m arket was growing, m uch o f it could
be supplied by the small- and medium-sized enterprises of a m ore
traditional sort. T he new large-scale m odern plants needed foreign
markets for continuous growth and new investment.
It was fortunate for some industries, and for the economy as
a whole, that the Korean W ar and an intensification of the Cold
W ar took place at about this time (the early 1950s) when the new
industrial drive was beginning. American military spending and
stock-piling m eant orders for machinery, steel, chemical products
and arm aments. Jap an became a forw ard military base and arsenal
for operations in Korea. In April 1952, Occupation was formally
ended, but Jap an was still strategically linked to the United States
through the US-Japan Security Treaty. Japan was now perm itted,
once again, to have its own arm ed forces.
Already, during the 1950s, some Japanese products had begun
to establish a strong position in foreign markets. T he subsequent
growth of exports and foreign trade was, because Ja p an ’s growth
depended absolutely upon the ability to im port raw materials and
energy supplies, backed up by the general trading companies, or sogo
soshas, which have no real parallel in other countries. They establish
ed control over m ore than half the country’s im port-export trade.
H ard selling abroad, bulk-buying, detailed and up-to-date m arket
inform ation supplied by their own communications networks, m ade
them a key factor in Ja p a n ’s industrial expansion. T he sogo soshas
represented a new concentration o f economic power, parallel to the
zaibatsu to which they were related. They acted as bankers, financing
trade flows, insurers, warehousers and distributors. Today they
have a strong position in relation to suppliers and their knowledge
of foreign markets makes them indispensable for all but the largest
firm.
In unravelling the sources of Ja p an ’s industrialization it is clear
that they were multiple and complex. Partly the product of past
developm ent and peculiarities in the Japanese social structure, their
working out also depended on favourable international conditions
and the ability to exploit them. T he relationship between govern
m ent and business, already described, m ade possible an empirical
adaptation to circumstances and created a climate favourable to
continued growth. A virtuous spiral thus came into being, tending
43
to perpetuate growth through high profits and high investment
levels and generate the forces able to overcome adverse changes
as for instance, the Nixon shock o f 1971, the oil shock of 1973—74,
and the world recession of the later 1970s.
As we have seen, the conditions un d er which industry recovered
from the war and entered on a new stage o f expansion endowed
it with a high proportion of m odern, technologically advanced
plant. This established a bias favourable to continued technological
change; scientific and technological developments were thus closely
followed and bought or borrow ed from abroad. T he abundant
labour supply which had characterised the 1950s and had figured
as an im portant condition for growth largely disappeared as surplus
labour was absorbed and fresh supplies from the countryside
dwindled. Industry thus tended to move on to a m ore capital
intensive program m e, with a higher level of technology, especially
in electronic-related fields and m otor vehicles. Indeed, Japanese
firms began shunting the m ore labour-intensive processes off onto
branch plants in other countries where labour was still cheap, while
concentrating on capital-intensive processes at home. Difficulties
arising from the oil crisis, notably a balance o f trade deficit, were
m et by still m ore aggressive exporting. With the onset of world
recession, some o f the most successful industries o f the 1960s, such
as shipbuilding, had to contract. A daptation continued with industry
moving swiftly into m ore sophisticated branches of electronics,
computers, robotization, industrial biology and other science-linked
fields. It is difficult not to see here a concerted industrial strategy,
absent in most other capitalist countries. Undoubtedly it involves
great risks, assuming, in particular, that there will be a growing
m arket at hom e and, as always, in the outside world as well. T he
keynote o f Japanese response to the recession has therefore been:
try h ard er and keep ahead of the competition. O ther countries
have responded with caution, contraction and protectionism, thus
tending to worsen the situation rather than provide means for
overcoming the problems. By keen entrepreneurial behaviour and
continued investment in high technology - often financed by bank
lending - productivity gains have been m ade which have kept
Japanese products highly competitive, notably in the success o f the
car export drive in E urope and the United States. So far the gamble
has paid off, but still it rests on a precarious basis, particularly on
the highly-geared financial structure of many Japanese firms and
the dependence for profitability upon continued m arket growth.
T he period since the 1950s has seen fu rth er rem arkable changes
44
in Japanese society. T here has been a massive growth of cities and a
decline in the rural population, creating many new problems such
as traffic congestion, pressure on public transport, atm ospheric
and environm ental pollution. Incomes and consuming power have
risen; Japan has ceased to be a low-wage economy. This has m eant
higher living standards, but the pressures o f urban living have also
increased. Basic to economic growth has been a shift o f resources
from less to m ore productive uses. Until the end o f the 1970s there
was still scope for this process to continue, but the possibilities may
be narrowing. However, although it is clear enough that Jap an is
a m uch m ore affluent society than it was in the 1950s and that the
masses have gained, the lion’s share o f productivity gains have gone
to capital. T he weakness o f the independent labour movement, its
willingness to accept compromise rath er than confrontation, has
contributed to this. Employers in other countries may look enviously
at Ja p a n ’s harm onious labour relations, but there is no guarantee
that they will rem ain that way.
Business rem ains highly concentrated and has probably become
m ore so over the past decade or so. T he dualism which has long
characterized Japanese industry rem ains deeply-rooted. Small- and
medium-sized firms continue to produce a wide range o f light
m anufactured goods, largely for the hom e m arket, but also partly
for export. They are widely employed at first, or even second or
third remove, as sub-contractors for the big firms. T here has been
a m arked tendency for the small- and medium-sized firms to bear
the bru n t of the depression; paying higher prices for their inputs
and accepting lower prices for their products. T he smaller firms,
in particular, have had to accept lower profit margins and their
bankruptcy rate has been high. Moreover, as the large firms face
difficulties in markets for existing products, there has been a
tendency for them to diversify, sometimes into fields previously
dom inated by the smaller firms. On the other hand, the speciali
zation m ade possible by the sub-contracting system has advantages
which the big firms would not like to lose. Industrial dualism seems
likely to continue, though its form will undoubtedly change, to the
disadvantage of the small- and medium-sized firms.
Wages and working conditions in the smaller firms tend to be less
favourable than in the big firms: workers cannot count upon lifetime
employment or retirem ent pensions. Few of them belong to trade
unions and wage levels tend to be forced down below price increases.
T he smallest firms depend upon the family and its relations for
labour. O thers have been facing recession by increasing part-time
45
employment of retired workers and m arried women. Something
like half of the industrial labour force is affected by these conditions
—a fact often overlooked when praise is lavished upon Japanese
labour relations and working arrangem ents. O f course, there are
big differences between enterprises in this sector. Some smaller
m anufacturers have adopted new technologies, extended their
product range and gained ground. Since the 1950s, productivity
gains appear to have been larger in the small- and medium-sized
sector than in large-scale industry. T he form er have also been
able to obtain credit from the banks. Perhaps the gap between
the m ore efficient smaller firms and large-scale organized industry
was narrowing, giving scope for fu rth er increases in output and
productivity. T he recession from the late 1970s may have checked
this process; the big firms have sought to m aintain their profits at
the expense of their smaller competitors and have driven harder
bargains with their sub-contractors.
Japanese industrialization has m aintained a m om entum which
has pushed it ahead o f most of its rivals. T hrusting and aggressive
sales policy, efficient organization and scientific m anagem ent have
all made their contribution. None of the elements o f Ja p a n ’s success
have been trade secrets. Indeed, the Japanese firms often simply
copied the best techniques o f other countries, and adapted them
to their own needs. T heir models, in the main, were draw n from
the United States; subsequently they were able to penetrate the
American m arket, as well as competing successfully with American
and other foreign firms in third markets. T he general dynamism
of the economy, the lack of any serious domestic social or political
challenge to the dom inant cliques in politics and business have
no doubt facilitated the process of expansion, giving Japanese
capitalism its distinctive identity in the post-war period.
In a sense this process could be described as production for
production’s sake, bearing in m ind that high profits are necessary
for the dom inant firms to justify continued investment at a high
rate. Dedicated company men, seconded by their counterparts in
the economic ministries, have m aster-m inded the industrial effort
after the style o f an operation of war. As in war, there are wastes
and casualties and the environm ent bears the marks o f battle. In
the interest of continued profitable expansion, caution tends to
have been throw n to the winds. T he big corporations have taken
risks, but their risks have also been spread and hedged by their
own diversified structures. Resort to bank lending and inflationary
finance has been used on a scale which would have been regarded
46
as most im prudent in many other countries. Governm ent spending
has regularly exceeded tax revenues, making the Japanese economy
one of the most highly indebted in the world. On the other hand,
it is an internal debt. It has been a cardinal policy of Japan to
avoid dependence upon foreign capital, whereas other economic
‘miracles’, such as those of South Korea and Brazil, have entailed
enorm ous foreign debts. A part from the oil companies, the foreign
MNCs have generally failed to establish m uch of a position in Japan,
and when they have done so, domestic finance or control has often
been present. On the other hand, the growing financial strength of
Japanese corporations has enabled them to open their own branch
plants in many countries, including the United States and W estern
Europe.
Japanese firms displayed considerable resilience in the face
o f the sometimes violent economic changes of the period from
1974. Serious recession or stagnation were averted. Depressed
industries were ru n down but new, high-tech industries continued
to grow. Some labour-intensive processes were transferred to
other, low-wage Asian countries. T he main anti-crisis response
was an intensified drive for markets, especially in the high-income
countries o f W estern Europe and N orth America. These markets
became indispensable for the continued growth of the Japanese
economy; at the sariie time, building up current account surpluses
available for investment in branch plants or the purchase of stocks
and bonds and real estate. T he hom e m arket grew slowly, though
there was some shift to services, but formal or informal protective
barriers restricted imports. T he Japanese continued to manifest a
high propensity to save, a tendency which was perhaps reinforced by
the ageing o f the population. T he American governm ent continued
to exert pressure on Japan to lower trade barriers and to expand
internal dem and, with little success.
At the same time the economy was showing signs o f ‘m aturity’. T he
phase of technological catching-up had come to an end. Wages and
costs had risen while production had grown in countries like South
Korea and Taiwan. Jap an was no longer a high-growth country; a
steady rate of around 4 per cent was the best that could be expected.
T he huge trade surpluses and the savings habits o f the population
had m ade Jap an a capital-rich country seeking new investment
fields. As a m ajor creditor, increasingly integrated into the world
m arket, with powerful m ultinational corporations operating on a
world scale, Jap an was thrust into a new and unaccustomed position
for which neither governm ent or business seemed to be fully
47
prepared. T he appreciation of the yen in 1987—88 was an om en of
possible difficulties to come, notably by making exports m ore expen
sive. In the past, industry has faced up to such a challenge by cutting
profit margins and cutting costs. While many countries, including
the United States, are being urged to adopt austerity program m es
to deal with their economic problems, the Japanese are being told
to save less and consume m ore, for their own good as well as that of
others. Because Jap an has an inefficient and protected agriculture,
food is m ore expensive than it m ight be. Even if food prices came
down, for example by adm itting m ore American farm products, it
is not certain that this would open up a m arket for m anufactured
goods on a scale which m ight substitute for sales abroad. Because
of lack of space and the small scale o f houses and apartm ents, there
is a limit to the num ber of consum er durables and cars that the
home m arket can absorb. Rising incomes are likely to go into m ore
savings and services. T here is room for m uch m ore social spending
on the part of the governm ent: a prescription which runs contrary
to the currently prevailing trend towards liberalization and less state
intervention in the capitalist world and is not likely to find favour
in Tokyo.
SOCIAL COSTS
T he emphasis on production, the subtle propaganda effort to

create and m aintain a consensus built around the assum ption that
what is good for the big corporations is good for all Japanese, has
m eant that social goals have been given low priority. Consequently,
industrialization has been attained at a social cost which is not taken
into account in the overheads o f firms or in the enthusiastic accounts
o f foreign journalists. Japan has one of the most serious problems of
environm ental disruption and atm ospheric pollution o f any country
in the world. Industrial and urban sprawl have ravaged large areas
of the countryside. T he rapid pace and increasing strain of urban
living have caused health hazards, psychological disorders and a
high suicide rate. While industry has been capable o f turning out a
huge volume o f consum er goods, housing standards have rem ained
low for the wage-earners. T he still poor working standards and
inadequate wages, as well as the exploitation of women workers,
especially in the smaller firms, has to be m easured against the
rise in real wages, and relatively good conditions found in the
48
organized industrial sector. T hus rapid industrialization has had
some profoundly disturbing social consequences in m odern Japan.
T he m ajor question for the future is w hether the phenom enal
industrial upsurge will continue and, if so, what will be its effects for
Japan and for the world. Will Jap an become the num ber two, or even
num ber one industrial power? Is it the super-state o f the future, the
alternative form o f capitalism from which other countries in the
capitalist world will have to learn if they are to survive? T he study
o f history provides no answers to these questions, but the answers
that are given will affect the destiny o f the whole o f m ankind in the
twenty-first century.
49
CHAPTER THREE
The Soviet model: a critical

view
Soviet industrialization will rem ain enshrined in history as m arking

an epoch, by its scale, its rapidity, its unprecedented character
and the heavy hum an costs involved. It was the first case of
industrialization un d er centralized state direction in accordance
with a predeterm ined plan. Since the outcome was the transform a
tion of a relatively backward and predom inantly agrarian country
into an industrial giant, it became something of a model. Because
a prerequisite for it had been a revolution which had dispossessed
the landowners and capitalists and brought in its wake violence and
repression, it stirred opposition and hostility abroad. Even those
who were sympathetic to its declared aims followed its course with
m ixed feelings. Inevitably, therefore, Soviet industrialization has
generated an enorm ous am ount of interest and controversy which
is still going on. Indeed, because o f the nature of the regime
established by Stalin in the 1930s, m uch of the history of the
process is shrouded in secrecy and inextricably connected with the
political struggles of the contem porary world.
EARLY INDUSTRIALIZATION
Until the Five Year Plans, the first o f which began in 1928,
the rate and character o f economic developm ent, and thus o f
industrialization, had been determ ined mainly by the laws of the
m arket u nder conditions o f private ownership o f the means of
production. Certainly, the state had never been entirely neutral
and in some countries had played a positive role, assisting the
50
The Soviet model: a critical view
accumulation o f capital in various ways: protecting national
industry, providing infrastructure, fostering technological change.
Indeed, such had been the role of the state in pre-revolutionary
Russia. Capitalist relations had not become established until the
nineteenth century. T he Industrial Revolution came to Russia as
an im port, not as an autonom ous process. Industrialization, when
it began, had been largely a product o f state policy, rather than
o f the free working of m arket forces. To that extent there was
a certain continuity between the Tsarist regime and revolutionary
Russia after 1917. In the scales of history, however, this factor
surely weighed little com pared with the sharp break with the past
represented by the Bolshevik Revolution of 1917.
It has been the fate of the territory of the Russian Em pire and the
Soviet Union to be a vast laboratory for the testing out of economic
theories and program m es. By the time capitalist relations began to
develop on an appreciable scale, in the second half of the nineteenth
century, Russian intellectuals were able to make a m ore conscious
appraisal o f the implications than had been possible in countries
which had developed earlier. T here were those who wished to see an
accelerated capitalist development; others feared the consequences
for Russia and sought either to block its path or propose alternatives.
In any case, with the industrialization of West European countries,
the Tsarist regime itself found its previous position of power in
Europe underm ined by the backward economic base upon which
Russian society rested.
Until after the Emancipation of 1861, the mass of the Russian
peasantry, which comprised the great majority o f the population,
rem ained in one or other category o f serfdom. T he u pper class of
landowners, the governm ental machinery, the army and the court
depended upon the surplus extracted from these unfree peasants
either from the labour perform ed on the large estates producing for
the m arket, or from the payments in cash or kind exacted from the
serfs tilling their own strips of land. Peasant agriculture was of low
productivity and, once dues and taxes had been paid, the peasantry
could buy little in the market.
T he lack of a mass internal m arket had, as a counterpart,
the low level o f developm ent of industry, the small size o f the
m erchant class and the weakness o f the urban bourgeoisie. These
features of backwardness were reinforced by the large distances
separating complementary raw materials and producers from
potential markets. By the 1830s and 1840s, Russia was receiving
the Industrial Revolution as an im port, chiefly in the foriri o f textile
51
machinery and, later, other technology including the railway. Such
imports \continued throughout the century and until 1914, but,
although they endowed Russia with a m odern industrial sector, they
could not bring about an all-round structural transform ation in the
society and economy as a whole. Such a transform ation revolved
around the massive agrarian sector and thus raised the question of
serfdom and, after emancipation, o f the fate o f the peasantry.
T he first sign o f m odern industry in Russia, the growtK of
a cotton textile industry, was a spontaneous response to m arket
forces, but they were quite inadequate to initiate a reshaping of
the economy as a whole on West European lines. Indeed continued
industrialization in other European states exposed the relative
economic backwardness o f Russia, thus jeopardizing the political
ambitions o f the Tsarist regime. T he Crimean W ar o f 1854-56
dem onstrated the growing disparity o f forces in a dram atic way.
This posed a new problem for the governm ent which it never
succeeded in resolving until its downfall. I f Russia was to rem ain a
great power, fundam ental changes had to be m ade in the economy,
and at the same time in the social structure. Industry had to be built
up, which m eant an increase in the social weight o f the bourgeoisie
and the creation of an urban proletariat. Agrarian relations had
to be changed by abolishing serfdom and giving m ore scope to
the developm ent o f capitalist relations in the agrarian sector.
Modernization would have to take place in every field, thus opening
the way for W estern influences such as liberalism, democracy, and
socialism. T he changes necessary to enable Russia to rem ain a great
power m eant the intrusion of forces likely to challenge the social
dom inance of the landowning class and the autocratic rule o f the
Tsar, with which it was inextricably bound up.
A fter the Crimean W ar it became clear to the Tsar and his
advisors that some reform s, however undesirable, were necessary
for the survival of the regime. T he most significant reform was the
emancipation o f the serfs, announced in the edict o f 1861. As it
turned out, the change disappointed the serfs as well as their owners;
it was carried into effect by stages, left the traditional peasant village
(the mir) intact, and effected no rural revolution. Most peasants
were m ore or less tied to the soil; as a class they lost land; the
landlord estates rem ained and form er serfs had to purchase their
freedom . T he regime dared not emancipate the peasants without
land, and it did not redistribute land in such a way as to create a
viable land-owning peasantry. With some exceptions, the form er
serfowners were ill-prepared for the role of innovating landlords
52
or entrepreneurs. Capitalist relations slowly penetrated the villages,
leading to differentiation within the ranks of the peasantry. Some,
later to be known as kulaks, turned towards production for the
m arket, becoming employers of labour, moneylenders and grain
dealers. Those with little or no land became a rural labour reserve
for the estate farm ers and kulaks. In between were the mass of
the peasants, struggling to support themselves and their families
on insufficient land and with backward methods. As village ties
loosened and the mir lost some of its hold, m ore of the younger
people moved off to find work in the city, though often retaining
links with their native villages. In short, in many different ways, the
peasant village was draw n into m arket relations. T he hope that the
village community could provide the foundation for some kind of
agrarian socialism had waned by the end of the nineteenth century.
T he peasant problem rem ained to haunt Tsarism. Meanwhile,
un d er pressure o f international competition, the state had taken
a series of steps to m odernize society. Railways began to open up
Russia’s natural resources and strengthen its ties with the world
m arket via the export trade. Foreign capital was attracted both to
finance the growing expenditure o f the governm ent, especially on
arm aments, and to establish new industries. D uring the period in
which Sergei Witte was Finance Minister, the state played a decidedly
forw ard role, through tariff protection, railway building and the
granting of contracts on favourable terms to business firms. D uring
the 1890s, Russia experienced its first big industrial spurt largely
supported by governm ent spending and promotion. It proved to
be short-lived as there was insufficient impetus, in the shape of a
growth of the hom e m arket, to encourage big investments of private
capital. T he boom faltered and the early years o f the twentieth
century were difficult. T he economic slow-down encouraged an
adventurous foreign policy in M anchuria and Korea, leading to
the disastrous clash with Jap an in 1904 and the failed Revolution
of 1905.
T he spurt of the 1890s had already begun to endow Russia
with a m odern industrial sector embodying the most advanced
technology im ported from the leading capitalist countries. In the
years leading up to the outbreak o f war in 1914, this industrial
sector went through fu rth er rapid growth concentrated in a few
main centres. Plants were built on a large scale and on the most
up-to-date lines in such fields as iron and steel, engineering and
arm aments. Correspondingly there was a growth in tfte size of
the industrial proletariat, particularly heavily concentrated in large
53
plants and a few great industrial centres. T here had also been a
growth in the railway and transport system, though these were
still very inadequate for Russia’s needs, where large num bers of
wage-earners were employed. Although new drafts of industrial
workers were being recruited from the countryside as industry
expanded, there was now a growing hereditary proletariat in the
towns. While still greatly outnum bered by the huge peasant mass,
this concentrated urban working class played a crucial role in the
Revolutions of 1917 and was the main social force behind the
Bolsheviks when they took power in November of that year.
Continued industrial growth was not sufficient to overcome
Russia’s backwardness and the gap with the leading capitalist
countries widened in the quarter o f a century before the First
World War. Average income per capita and the growth of national
income as a whole were held back by the poor perform ance o f the
agrarian sector, still dom inated by the small-peasant economy. T he
peasant revolts in 1905 induced the regime to change its policy on
the agrarian front in the series of measures, known after the Interior
Minister Stolypin, which aimed to create a prosperous peasantry.
T he intention was to enable peasants to leave the mir and to pursue
individual farm ing on their own plots separated from the village
lands. These peasant proprietors, able to farm for the m arket,
would, it was hoped, enjoy prosperity and be pillars o f the regime
in the countryside. T here had already been some growth o f peasant
capitalism. T he state now put its weight behind this development,
abandoning the idea, current after 1861, that the comm une was a
factor o f stability. In the nature of things, the Stolypin reform s were
bound to take some time to work themselves out and were overtaken
by the war. In any case, they could not solve the agrarian problem.
Population was growing rapidly and land hunger was acute in many
places. Besides, although the gentry had been selling off lands or
leasing them to peasants, they still retained large amounts which
were regarded with covetous peasant eyes.
Although capitalist relations had m ade substantial inroads into
Russian agriculture, there had been no structural transform ation
and the fate o f the peasantry rem ained to be determ ined. An
advanced m odern industry had been built up, with all that that
entailed, but it was confined to a few areas. Russia was still dependent
upon the m ore advanced countries for most kinds o f m achinery
and for the m ore sophisticated m anufactured products. T he home
m arket was still dom inated by a mass o f peasant households able
to buy only the cheaper consum er goods and a few essentials for
54
housekeeping and husbandry. Change in the agricultural sector
was particularly slow and a healthy basis for industry was still
missing. Industrialization as a process affecting the whole of
society, capable of diminishing the weight of agriculture, had
hardly begun. In one sense, though, pre-war Russia experienced
pseudo-industrialization, as industry rem ained an im ported p rod
uct, an enclave developm ent in a predom inantly peasant agrarian
society.
THE REVOLUTION AND ITS AFTERMATH
This was the social-economic system which broke down u nder the
strain of the First W orld War, carrying away the political superstruc
ture of Tsarism and creating the conditions for revolution. Russia
experienced all the typical wartime problems, m ade worse by the
weaknesses o f some sectors of the economy. T here were serious
distribution problems and scarcities resulting from breakdowns
in the transport system and the cutting off o f trade connections.
Governm ent administration o f the war machine was inefficient and
broke down under stress. T he Russian divisions were lightly arm ed
and poorly supplied, reflecting the backwardness of the economy.
Inflation, food shortages and unem ploym ent inflamed working
class feeling against the governm ent. Badly-equipped troops
suffered defeat and demoralization. C onfronted by a growing wave
of hostility and unable to cope with the organization of a m odern
war, the Tsarist regime was swept away by the spontaneous mass
m ovement of March 1917. T he Provisional Governm ent which
took its place, since it wanted to keep Russia in the war, was forced
into unpopular measures and steadily lost the support of the
urban workers to the energetic leaders o f the Bolshevik Party led
by Lenin and Trotsky. Meanwhile, the long-pent-up anger of the
peasants burst out all over the country in a m anner rem iniscent of
France in 1789. Taking m atters into their own hands, they seized
and divided up the landed estates of the gentry. It seemed that
the agrarian problem would be solved along the lines of the Great
French Revolution, by the creation of a class o f peasant proprietors.
Recognizing the need for an alliance with the peasantry, Lenin
endorsed the peasant actions in line with a policy worked out some
years before. It was, indeed, essential if the seizure of power by
the Bolshevik-led workers in the towns in November 1917 was to
succeed in establishing a viable governm ent. f
55
T he taking o f power by the Bolsheviks ended a period of ‘dual
power’ in which the Provisional Government, looking towards a
parliam entary system, was confronted by soviets (committees or
councils) which had taken over m uch of the real power in the
factory districts, the army and in the villages. A fter November, the
central governm ent was controlled by the Bolshevik leadership, but
its ability to govern was determ ined by the soviets and other local
institutions.
T he leaders o f the new regime, while taking advantage of
Russian conditions in order to seize power, were internationalist
in outlook and assumed optimistically that before long capitalism
would collapse in the belligerent countries and that working-class
governm ents would follow their example. They fully understood
Russia’s economic weaknesses as deriving from a predom inantly
peasant country, and they had no illusions about the attitude of
the peasants towards socialism. They hoped that if they held out
until the revolution spread to the m ore advanced countries, Russia
would be able to obtain economic and technical aid to speed
economic growth and raise living standards. They did not believe
that a socialist society could be built unaided in a backward country
such as Russia, though they did accept that the necessary first steps
should be to take into state ownership the ‘com m anding heights’ of
economy: the banks, the mines, and the main industrial concerns.
Even so, the Bolsheviks began cautiously; there were fears that
capitalist owners and m anagers could not readily be replaced from
the ranks o f the working class and intelligentsia sympathetic to the
new regime. However, as far as that goes, the workers tended to take
m atters into their own hands m uch as the peasants had done, taking
over their places of work and arresting or chasing away their form er
bosses. T he governm ent was thus, in effect, obliged to endorse these
moves by speedy blanket measures of nationalization, also extended
to the land.
Although, under pressure, the new Bolshevik governm ent rapidly
laid the legal foundations for a socialist society their hopes for a
spread of the revolution were to prove illusory. Instead, they soon
found themselves fighting a civil war against those who wished to
restore Tsarism and, in addition to this, they were surrounded by
hostile capitalist states. In the struggle for survival, the economic
measures taken were geared mainly to the needs o f the situation.
Although glorified u nder the title of W ar Communism these meas
ures were basically those of a siege economy in which the dem ands
of the front came first. However, they were also measures o f a kind
56
which could only have been taken by a governm ent determ ined to
carry through a revolution in property relations and thus to lay the
basis for a socialist society. T here could be no question of pursuing
a policy of industrialization at this stage; indeed, it was impossible to
prevent a fu rth er running down of the economy under conditions
o f civil war.
Food supply constituted a m ajor problem. T he peasant revolution
m eant that the cultivators were now able to retain a larger p ropor
tion of what they produced. T he landlord estates no longer provided
a m arketable surplus because they had been divided up am ong the
peasantry. In fact, free rein had been given to agrarian individualism
and this heightened class differentiation. T he Bolsheviks had little
support or influence in the villages but they depended upon the
peasants to provide food (and some industrial raw materials) for
the towns and the armies engaged in the civil war. T he mir generally
retained its powers and tended to be dom inated by the richer
peasants. T here was practically no interest in collective farm ing and
only a few such farms were form ed. Since industrial production had
declined catastrophically and the civil war had priority claims, there
were few goods available to supply the peasants and to induce them
to part with surplus grain. Consequently, in 1919-20 ‘surplus’ grain
was requisitioned by force and peasants were ordered to carry out
sowing plans to supply the governm ent. This policy caused growing
discontent and some peasant revolts in 1920. By this time, the White
armies were being driven back and the Civil W ar was nearly over.
Industrial policy during the period o f W ar Communism was
determ ined by the priority needs of the army. Control over
industry was centralized in a state organ, the Suprem e Council of
National Economy (VSNKh according to its Russian initials). T he
main nationalized industries were grouped into ‘trusts’ responsible
to VSNKh. T he shortage of raw materials became increasingly
acute, forcing the closure o f many factories, or the concentration
o f production in the most efficient. Many workers joined the
newly-formed Red Army in the civil war, or were drawn off
into the administration of the Party and the state. With food
shortages acute and factories closing down, other workers drifted
back to their villages of origin. Payment o f wages sometimes took
the form of products m anufactured in the factory to be bartered
and sold on the black m arket. T here were even cases of workers
dismantling their factories and selling the bits and pieces. Nothing
could stop the industrial decay which reduced total production in
1921 to one-third o f its 1913 level.
57
By the time the Civil W ar ended, the economy was close to collapse.
T he wofking class was decimated and exhausted; the peasantry
sullen and discontented. Inflation was ram pant and parts o f the
country were stricken by famine and disease. Norm al exchanges
between village and town had practically ceased. Control by the
soviets was largely superseded by centralization and the setting
up of a comm and structure on military lines opening the way for
bureaucratic distortions. T he consolidation o f the party and state
apparatus which began u n d er W ar Communism did not end with
it.
T he end of the policy o f W ar Communism was in response to
the peasant opposition to the requisitioning o f grain. A ‘retreat’ was
called for, with the adoption in August 1921 of the New Economic
Policy. In the face of peasant resistance and a tired and disillusioned
working class, Russia did not have the resources, hum an or material,
to make a forced m arch towards socialism. Above all, the failure of
the revolution to spread, the ability o f the capitalist states to survive
the war and to begin the reconstruction of their own economies,
shattered the hope that the working class o f the advanced countries
of Europe would come to the aid o f backward Russia. Lenin and his
colleagues were thus confronted with an entirely unexpected and
unwelcome prospect. Although the Red Army had throw n back the
forces o f intervention, the new revolutionary regime was left alone
and isolated, a pariah state in a hostile world for an unknown period
until the revolutionary movem ent in the capitalist countries became
strong enough to take power. M oreover, while the peasants had no
wish to see the old regim e restored and the retu rn o f the gentry, they
were strongly opposed to the policies of W ar Communism and, as
the source of the vital food supplies, held a strong card which the
regime would ignore at its peril.
THE NEW ECONOMIC POLICY
If W ar Communism was determ ined by military considerations and

had been accompanied by serious mistakes and not a few illusions,
the New Economic Policy (NEP) came to grips with the grim realities
of Russia’s predicam ent. Like the policies which were to follow it,
it accepted that, at any rate for the time being, Russia would be
isolated. A compromise thus had to be m ade with the peasantry,
and the dynamic o f m arket forces and individual acquisitiveness had
58
to be tem porarily harnessed to the over-riding tasks of economic
reconstruction, rather than o f conducting a civil war. These were
bitter pills for a Party committed to socialism to swallow, but there
seemed to be no alternative. Clear differences began to appear with
in the Communist Party after the New Economic Policy came into
operation; about how long the policy should last, and what should
take its place. It was thus in the 1920s that the question of the type
and tem po of industrialization appropriate for Russian conditions
was debated at the highest level and with comparative freedom . All
the issues pertaining to economic growth were discussed at length
well before they began to interest W estern economists.
Before 1914, Marxists had generally assumed that those
countries in which capitalist developm ent had reached the most
advanced stage would be the ripest for revolution, and thus for
the construction of a socialist society. T he fact that the revolution
had come first in one of the least-developed E uropean countries,
in which not the working class but the peasantry constituted the
majority of the population, was disconcerting for many socialists
inside and outside Russia. To some it seemed that the new regime
would have to undertake the task o f primitive accumulation assigned
historically to the bourgeoisie and that the outcome would not be
socialism but some kind of capitalism. This was obviously not the
view of the Bolsheviks. At least until Stalin enunciated the doctrine
of ‘socialism in one country’ at the end of 1924, all tendencies in
the Party held that while Russia could take steps on the road to
socialism, they were the vanguard of an international movement
and that sooner or later the spread of revolution to other countries
would enable them to break out of their isolation. Moreover, the
Bolsheviks took the lead in splitting the socialist movement precisely
on the point of activating the world revolution and breaking with the
narrow nationalist conceptions o f the old leaderships o f the Second
International, revealed on the outbreak of war in the sum m er of
1914.
It is sometimes forgotten by those who write the economic history
o f the Soviet Union that at this stage the tasks o f the Soviet regime
in Russia were seen as part of a larger strategy laid down by the
Communist International. It was this strategy which was to resolve
the dilemma provoked by the isolation o f the first working-class
revolution in a backward, predom inantly peasant country. This
belief m ade the retreat of 1921 m ore acceptable than it might
otherwise have been.
Marxists were agreed, however, that a condition for socialism
59
was the fullest possible developm ent of the productive forces.
This m eant the application of advanced technology to agriculture
as well as industry, the building up o f m odern large-scale industry
and the raising of the skills of the working population through the
maximization o f educational possibilities. These were part means,
p art ends in m aking possible the im provem ent o f living standards
and the all-round fulfilment o f the capacities of every m em ber of
society. It was agreed, m oreover, that socialism, like capitalism, was
by its nature an international system, particularly so because the
abolition o f scarcity as far as the essentials of life were concerned
could hardly be brought about on the basis of the limited resources
of any single country, however large, and certainly not o f a backward
country such as Russia.
For the Marxists, industrialization was an indispensable part of the
m arch to socialism, a part which could begin in a relatively backward
country, even one surrounded by hostile states. It required, of
course, the nationalization of the m ajor industries; not in itself
socialism, but a step in that direction already taken early in the
Russian revolution. Once the main industries were nationalized,
the allocation o f resources and decisions about what was to be
produced could not be left to m arket forces. T here would, in other
words, have to be some centrally-determined plan. H ere again, early
on, the revolutionary regime in Russia had begun to set up central
organs to direct the economy.
It can be said, therefore, that in Russia there was an inseparable
and necessary connection between the building o f socialism, and
the beginnings of industrialization and planning. T here could be
no industrialization which was not planned; the object of planning
was to make possible faster industrialization, which in turn, was a
necessary basis for socialism; the plan was the instrum ent through
which the material basis would be laid. Industrialization under
these conditions was thus different in some fundam ental respects
from industrialization in the capitalist countries. Above all, it was
to take place consciously and not in response to the blind forces
of the market. Ostensibly, Soviet industrialization was intended to
make possible the realization of the socialist goal, raising the living
standards of the entire people by increasing the supply o f use values;
capitalist industrialization, on the other hand, had been geared to
the drive for profit for the owners o f the means o f production
through the increase of exchange values. Capitalist industrialization
had been preceded by a phase o f ‘primitive accum ulation’, which
included the forcible expropriation of the peasantry from the land,
60
and had been accompanied by the mobilization of an industrial
proletariat constrained to accept a low level of consumption and
harsh living conditions. T he first generation or two of industrial
workers derived few benefits from economic growth; and even if
there were some, they were far less than those accruing to other
classes. While recognizing the progressive character of capitalist
industrialization and thus its necessity, Marxists had been equally
at pains to dem onstrate its dark side as part o f the case for social
ism. Presumably, therefore, if industrialization took place under
socialist auspices it could be expected to have markedly different
characteristics.
It should be rem em bered that the situation in the Soviet Union
was by no means what socialists had expected. Not only was the
country relatively backward, with a vast peasantry, but it had to
face a hostile world, with an economy badly ru n down after years
of war and civil war. T he first task was to restore industry, repair
the battered transport system, re-establish exchange between the
country and the town and win the cooperation of the peasants.
Only then could there be a resum ption o f industrialization or any
hope of beginning the transition to socialism. In Lenin’s conception
of the NEP, tem porary compromises would have to be m ade with
capitalism at hom e by perm itting m arket dealing and ‘concessions’
granted to foreign capitalists to operate on Russian soil until the
revolution had spread to the m ore advanced countries.
By its control of the main industries, the monopoly of foreign
trade, and the centralized bodies set up to control the economy, the
state would be able to prepare the economic conditions for socialism.
This m eant not only reconstruction, but also making a start with
long-term planning. T he plan for electrification, enthusiastically
supported by Lenin, and draw n up by a body o f experts, began in
1921. In the same year Gosplan (the State Planning Commission)
was set up to work out future economic plans. Such plans would
clearly have to provide for investment in industry; just how m uch
and where the resources were to come from rem ained to be decided
and provided an essential part o f the economic debates of the 1920s.
Planned industrialization would require a high degree o f centralized
control. It would also require the accumulation o f resources in the
hands of the state. In the absence of foreign capital, these resources
would have to come, to a very large extent, from the agrarian
sector, from the peasantry who, under NEP, were once again able
to produce for sale in the m arket once they had paid the ‘tax in
kind’ to the state. T here was an obvious contradiction, therefore,
61
between the m ethods of the NEP and the requirem ents of planning.
In the first years of the NEP there were violent fluctuations
in the relative prices of agricultural products and m anufactured
goods. Agricultural production had suffered less and recovered
more quickly from the effects of civil war. T he first year or two of
the NEP saw agricultural prices rise m ore rapidly than industrial
prices. In 1923 the opposite occurred; larger amounts of agricul
tural produce were placed on the m arket and prices came down
while industrial prices were kept up. T he result of what was called
the ‘scissors crisis’ was that peasants withheld their produce from
the m arket and refused to buy the high-priced industrial goods.
In order to restore exchanges between town and countryside, state
organs had to lower prices o f industrial goods, but not before serious
differences had arisen am ong those responsible for economic policy.
Many of these differences arose over the question o f the policy
to be adopted towards the peasantry. As a whole, the peasantry had
gained from the Revolution, though mainly through its own efforts.
Land had been seized from the gentry and redistributed, and the
peasantry no longer had to pay rent to a landlord class. A fter 1924,
taxes were fixed in money terms and produce had thus to be sold to
m eet this payment. On the whole, peasant families retained m ore of
what they produced and, with the inflationary situation, were loath
to sell unless there were goods which they wanted to buy. T he way
to induce the peasants to part with m ore o f their produce seemed
to lie, therefore, in increasing the output o f consum er goods at
prices which they were willing to pay. However, there was a danger
that this would, in effect, enable the peasantry to determ ine the
rate of industrialization. If the attem pt was m ade to squeeze m ore
out o f the agrarian sector by turning the term s of exchange against
agricultural produce, the peasants m ight strike back, as they had
done d uring the scissors crisis, and refuse to sell. More to the point,
if industrialization was to proceed once reconstruction had been
completed, m ore resources would have to be channelled into heavy
industry, m eaning that there would be no corresponding increase
in the output of consum er goods for some years. This m eant that
the peasants would be expected to feed the industrial workers in
this branch of industry without receiving a corresponding return.
O ne wing o f the Party, o f whom Bukharin was the spokesman,
wished to placate the peasantry by increasing the supply of consum er
goods and accepting a slower rate of industrialization. Reliance
would have to be placed upon m arket forces and material incentives,
almost certainly to the advantage o f the kulaks, the wealthier
62
peasants, whose influence was already growing in the villages
un d er NEP. Any attem pt to squeeze m ore out of the peasantry
by higher taxation or by m anipulating prices against agricultural
produce risked peasant hostility and reprisals.
In the disputes between factions within the Communist Party,
following Lenin’s death, Bukharin became the ally of Josef Stalin,
the General Secretary and an increasingly powerful figure in the
Party. T he latter had, at first, gained the support of Zinoviev and
Kamenev, two powerful party leaders, until serious differences
arose over questions of policy, and especially over Stalin’s theory of
‘socialism in one country’, first enunciated at the end of 1924, the
year in which Lenin had died. Contrary to the generally accepted
view in the Party during Lenin’s lifetime, Stalin m aintained that
Russia had everything ‘necessary and sufficient’ for the building
o f socialism and did not have to depend upon the overthrow of
capitalism in the advanced countries. Stalin’s main support came
from the apparatus-m en of the Party and the state machine, anxious
to consolidate their position and enjoy a quiet life after years of
war and upheaval and with no stomach for foreign adventures.
T he failure of the revolution to spread led to disillusionment with
the foreign Communist Parties and reinforced a strong nationalist
current in the Russian Party which found an echo in the population.
T he policy o f ‘socialism in one country’ and the tendency towards
bureaucratic control represented by Stalin, were opposed by Leon
Trotsky and his followers, who form ed what was known as the
Left Opposition. This was later joined by Zinoviev and Kamenev
and their followers, to form the United Opposition. Inner-party
struggles reached their height in 1927; largely due to Stalin’s control
of the party machine, he was able to isolate, discredit and destroy
the Opposition. T he tu rn in economic policy, decided by Stalin in
1928—29, would not have been possible, and cannot be understood,
in isolation from these political struggles.
Until the balance tipped decisively in Stalin’s favour, in 1927, there
was still a great deal o f open and uninhibited debate about economic
questions in the press and at Party gatherings. Planning was already
on the way through the activities o f Gosplan which published annual
control figures to guide decisions by the industrial trusts and other
state organs concerned with the economy. Although Stalin’s views
did not altogether coincide with those o f Bukharin at this time,
they were sufficiently close to make possible an alliance against
the Opposition whose chief spokesmen were Trotsky himself and
the economist Preobrazhensky. In the debates between 1924 and
63
1927, Preobrazhensky argued for a large-scale program m e of rapid
industrialization to be initiated as soon as possible. Just as capitalist
industrialization had been preceded by a process of ‘primitive
accum ulation’, there was no alternative in Russian conditions to
a similar pum ping over of resources from the agrarian sector to
industry without an equivalent return. Preobrazhensky described
this as ‘the law o f primitive socialist accum ulation’; it was, however,
a theoretical concept worked out at a highly abstract level. As far
as policy prescriptions draw n from it were concerned, they were
intended to apply to the situation prevailing un d er the NEP. T here
was no intention to uproot the peasantry, to appropriate their land
or to drive them into collective farms against their will. T he ‘law’
simply m eant that taxes and pricing policy should be used to transfer
part of the surplus product o f the private sector (of which peasant
farm ing was the largest but not the only part) to the accumulation
fund of socialized industry. It was assumed, also, that the latter
would also provide for a portion o f its own needs.
In its 1927 Platform the United Opposition set out its
policies. These included: progressive taxes on the better-off
peasants; support for the poorer peasants and peasants not
employing wage labour against kulak influence; encouragem ent of
agricultural cooperation, and the form ation o f collective farms on a
voluntary basis to encourage maximum initiative from the peasants
themselves. Obviously since this policy was not tried, its feasibility
remains problematic; what is clear is that an alternative course to
the one later to be followed had been put forward, but was rejected
by the Stalinist leadership of the Party. As for the supporters o f this
policy, they were subsequently liquidated on Stalin’s orders.
T he Platform of 1927 advocated a policy of planned industriali
zation at a fast tempo. This would strengthen the relative position of
the working class, enable agriculture to be supplied with machinery,
underm ine the position of the capitalist elements fostered by the
NEP, make possible a raising of living standards and contribute to
the defence needs of the country. At the time, this policy was rejected
as being prem ature, if not actually wrong in principle, and the NEP
continued m ore or less on Bukharinist lines until 1928.
Meanwhile, by 1926-27 industrial production had about reached
its 1913 level. Existing industries were in need of new equipm ent
and new branches had to be established. W hatever approach was
adopted, it seemed certain that large-scale industry would have
to play a leading role and that funds for accumulation would,
therefore, have to be found. T he planning authorities, Gosplan and
64
VSNKh, were strongly making this case. T he outstanding question
was how to bring the NEP to an end; but the real base of NEP was
in the countryside. Could the w holehearted adoption of a policy of
industrialization avoid breaking the pre-existing compromise with
the peasantry, whilst transferring resources from agriculture to state
industry along the lines recom m ended by Preobrazhensky and the
Left Opposition?
T he increased rate o f capital construction in 1927—28 caused
new strains, notably a ‘goods fam ine’, coupled with renewed
reluctance on the part of the peasants to m arket their surplus
grain (some of which they fed to livestock). B ukharin and those on
the Right took this as a sign that too m uch pressure was being put
on the peasants and that industrialization should be slowed down.
With the Left Opposition already defeated, Stalin was now able to
break with B ukharin and come forward as the advocate of rapid
industrialization, while still attacking the Left for wishing to split
with the peasantry. By the end of 1928, the Right had been routed
and Stalin was talking about the need to ‘catch up and surpass’ the
capitalist countries as being ‘a life and death question’. Priority
should thus be given to industrialization even though that m ight
intensify the goods shortage for the time being and impose a strain
upon the economy. W hat had been unacceptable two or three years
before had now become acceptable because put forw ard by Stalin.
It seems an inescapable conclusion that Stalin m ade this tu rn on
political, rather than economic grounds, as part o f a power struggle
which he was determ ined to win.
T H E F IV E -Y E A R PL A N
T he time was now ripe for the adoption of an ambitious Five-Year

Plan for national economic construction which had been incubating
in Gosplan for some time. Officially form ulated in October 1928,
it was not in fact presented and approved until the spring of 1929.
T he targets set and the tempos proposed greatly exceeded those of
the maligned ‘superindustrializers’ of the Opposition in 1927. Even
under the m ust favourable conditions they were bound to put a
trem endous strain on the economy and on the working population.
Although in the original Plan consum ption was scheduled to
increase, its most significant feature was the raising of net investment
to a level between one-quarter and one-third of national income,
65
three-quarters of which was to be in heavy industry. This was
the beginning of the famous ‘priority growth’ o f heavy industry,
characteristic o f the Soviet plans and even elevated into a ‘law’.
T he justification for this priority was that until a machine-making
industry was built up there could not be an expansion of consum er
goods industry to make possible an increasing supply of consum er
goods for a growing population. T hus resources had to be tied up
for a considerable period of time in constructional projects of all
kinds without m aking any contribution to the output o f consum er
goods. Present consumption needs were thus to be sacrified for the
sake of the future. At the same time it was assumed that food and
raw material supplies, as well as labour, would be forthcom ing from
the agrarian sector. It was here that the crisis broke.
Once the comm itm ent to rapid industrialization had been made,
there was little alternative to an onslaught on the peasantry, far m ore
brutal than anything proposed by Preobrazhensky. From 1927, the
governm ent was having increasing difficulty in procuring grain
from the rural areas. Relations with the peasantry deteriorated and
the influence of the kulaks tended to grow. Various penalties were
imposed upon peasants who failed to deliver grain. In retaliation,
in 1929, some villages simply refused to supply any grain at all.
T he closing down o f private trading and small artisan enterprises
furth er antagonized many o f the peasants.
T he main issue was that ju st at the m om ent when the decision
to industrialize called for regular and increased supplies from
the agrarian sector, large num bers of peasants were refusing to
cooperate. In a sense the regime was reaping the fruits of its
previous policy o f conciliating the peasants and even encouraging
the kulaks - the policy associated with the now disgraced Bukharin
(August 1929). As Stalin’s stranglehold over the Party became m ore
complete there was less and less scope for debate or discussion. Local
officials tended to present a falsely optimistic picture because they
feared being denounced as ‘deviationists’. Inspired and personally
led by Stalin, forcible procurem ents were organized in many parts
of the Soviet Union in 1928—29. T hen, without prior discussion
or adequate preparation, Stalin launched the collectivization
campaign, unleashing a storm in the Russian villages and bringing
about an upheaval involving suffering and loss o f life on a scale
which has few precedents in history.
T he first stage of collectivization, beginning in the sum m er
o f 1929, was ostensibly voluntary and concerned mainly the poor
and middle-grade peasants. In practice, considerable administrative
66
pressure was exerted on the peasants to form collective farms. T he
pace was accelerated, and the pressure increased; from November
1929, the whole process becoming increasingly arbitrary. At the
same time, the policy was initiated o f ‘destroying the kulaks as a
class’. Although this was supposed to be carried out by the poor and
m iddle-grade peasants, as part o f the class struggle in the village, it
was generally spear-headed by workers’ ‘brigades’ from the towns
and the GPU (state security police). Kulaks were classified according
to their degree of opposition to the regime. Some were arrested by
the GPU, large num bers were deported, and others were assigned
to poor quality land and not allowed to join the collective farms.
Thousands of peasants who were far from being kulaks were
classified as such, while others joined the collectives for fear of
being treated as kulaks.
THE CONSEQUENCES OF COLLECTIVIZATION
T he first mistake that Stalin and his supporters m ade was to

under-estim ate the tenacity with which the peasants would try to
conserve the land they had secured as a result of the Revolution
of 1917. They fought back against compulsory collectivization by
slaughtering their animals, indulging in wild feasting, and by
destroying property. T he result was a disastrous fall in the num bers
of farm animals, including horses needed for ploughing. This not
only reduced the food supply directly, but it also m eant a shortage
of draught animals and a lack of m anure for the newly-formed
collective farms. Although the pace of collectivization was tem po
rarily halted in the spring of 1930, and many peasants actually left
the collective farms, the offensive against the kulaks was resum ed
in 1931-32. T he hum an cost of the operation was incalculable. By
the end of collectivization, millions of peasants had been deported
hundreds of miles from their homes, many families were broken up
and children abandoned. Large num bers of peasants were sent to
forced labour camps. Others, for whom there was no place in the
collectives, drifted into the towns to form part of the new labour
army required for the Five-Year Plan. Many of the peasants who
joined the collectives had done so against their will and resented
the bureaucratic regime imposed upon them. They were, therefore,
not interested in working hard or in making the farm a success.
In any case, tractors and farm m achinery were not available in
67
sufficient quantities to raise the technical level o f many collective
farms above that of the peasant plots. Machines were often left to
rust in the fields, tractors broke down and could not be repaired or
fuel supplies were insufficient. U nder the circumstances, there was
a long running-in period for the collective farms. In the m eantim e
there was an alarm ing fall in agricultural output.
Nevertheless, agriculture was now firmly u nder state control.
It no longer had to struggle to extract a surplus from recalcitrant
private peasants. W hat was produced on the collective farms was
at the state’s disposal. This does not m ean that the m ethod used
to collectivize agriculture justified itself. O ther ways were available
which could have yielded equal if not better results without the
terrible hum an cost and the legacy o f peasant resentm ent which
lingered on for decades.
It would be too simple to suppose that collectivization did at least
provide the resources for industrialization. Between 1928 and 1932,
rapid industrialization required a big increase in investment. Most of
this seems to have been produced in industry through a reduction
in the real wage and through the employment of forced labour on
some o f the large-scale constructional projects which were part of
the Five-Year Plan. T he urban labour forces m ore than doubled
and the productivity of labour rose, perhaps by 40 per cent. Part o f
the increased labour force came from the previously unem ployed
in the towns, but the m ajor part came from the peasantry. T he rise
in the productivity o f labour depended upon machine technology,
im provem ent in labour skills and greater intensity o f work. Despite
a fall in total agricultural output, a larger proportion of the surplus
was available to feed the urban population and the increasing
industrial labour force, although per capita consumption fell. In
the early 1930s, food consumption in the countryside was also
forced down. This hardly adds up to a favourable balance sheet for
collectivization as imposed by Stalin nor does it justify the methods
used.
INDUSTRIALIZATION
As with collectivization, the drive for industrialization, begun in

the First Five-Year Plan, bore the unmistakable stamp o f Stalin’s
methods. It was, in many ways, a grandiose improvization pushed
ahead at breakneck speed regardless of hum an costs. T he country
was tu rned into a vast construction site from which sprang in
68
record time a large-scale industry poised not to increase the output
o f consum er goods but to make m ore machines and, later, war
material. Enorm ous hardships, m ore or less willingly borne, were
imposed on the workers, and these were m ade worse by the effects
o f forced collectivization o f the food supply, especially o f meat, milk
and other livestock products.
It has not been established that this was the only or the best
way to industrialize an underdeveloped economy. Certainly there
was no control or check from below on the way in which planning
was carried out. N or was any check imposed by m arket forces. T he
emphasis was upon quantity rather than quality, consumers had to
take what was available and most necessities were in short supply.
It was, in fact, a technocratic type of plan, imposed from above by
an irresponsible bureaucracy.
Nevertheless, the Soviet planning system acquired considerable
influence as a model. This was partly because Soviet propaganda
emphasized success, concealed failure and said nothing about
the forced labour camps, the unnecessary hardships and the
repression o f the Stalin era (though many admissions were, of
course, to be m ade from 1956 onwards, including the true figures
o f agricultural production). T he world depression, together with
high unem ploym ent levels in the capitalist countries, ensured the
Soviet model a sympathetic reception in some quarters. T hen, in the
underdeveloped countries, the Soviet model seemed to have some
direct application in showing how rapid industrialization could be
achieved through planning. It was shown that planning could work,
that high and unprecedented rates of growth could be achieved,
that a society without landlords or capitalists was viable and could
be dynamic. Impressive also was the spread o f literacy, the creation
of a disciplined labour force from the peasantry, and the training of
hundreds o f thousands o f administrators, managers and technicians
within a relatively short period of time.
THE HUMAN COST
All the same, the social costs were unparalleled in any industriali
zation before and since. In large part these were borne by the
peasantry in the shape of ‘dekulakization’. Many of the costs,
however, had nothing to do with industrialization or with planning,
but were part o f the policy o f repression employed by Stalin to
69
m aintain his place as head of the new bureaucratic stratum which
had come to power. As a result, the repressive apparatus built up
by the political police (GPU, NVKD, KGB) assumed wide-reaching
and illegal powers. D uring the purges o f the 1930s, millions of
people were subject to arbitrary arrest, execution, im prisonm ent
and deportation. T he labour camps became an im portant part of
the economy, employing millions of people on constructional tasks
in the most inhospitable parts of the Soviet Union. To a considerable
degree, the economy came to depend upon forced labour. Rather
than being a necessary part of the planning system, or making a
contribution to economic growth, the Stalinist policy o f extra-legal
repression had a negative effect on Soviet society which is still felt
to this day.
Even critics sometimes imply that the m ethods o f Stalinist
industrialization were the only way in which a backward country
like Russia could be industrialized within a short period of time.
For good m easure it is suggested that without the rapid build-up
of heavy industry regardless of cost in the first two Five-Year
Plans, the Soviet Union would have not been able to resist the Nazi
onslaught when it came in Ju n e 1941. Such argum ents prove to be
a perhaps unconscious but sophisticated argum ent for Stalinism.
T here is no evidence that the high costs o f industrialization were
necessary or that there was no other way to plan industrialization.
Stalin’s opponents had argued since the 1920s that the danger of
isolation m ade it necessary to build up a strong military-industrial
base. T he danger to the Soviet Union flowed principally from
Stalin’s own policies which helped open the way for H itler’s rise to
power in 1933. Stalin weakened the Soviet Union by m anoeuvring
for alliances with the capitalist countries —a process culm inating in
the Pact with Nazi Germany in August 1939. M oreover, the purges
had underm ined morale, especially in the arm ed forces, and had
rem oved many of the most talented comm anders. It was significant
that in some regions the peasants at first greeted the Germans as
liberators and that many captive Red Army m en joined the Vlassov
army, set up by the Nazis, to fight against Stalin.
THE SECOND WORLD WAR
T he war of 1941—45, by its scale and intensity, struck a heavy blow

at the Soviet Union, destroying, as it did, m uch o f the industry which
70
had been built up with such sacrifices u nder the First Five-Year Plan.
Defeat would have been certain but for the industrial base created in
the interior, beyond the reach of the invaders. This enabled the tide
to be turned and the already centralized, comm and economy lent
itself to the mass production of weapons of war. F urther sacrifices
were imposed upon the civilian population behind the lines, while
m uch of Soviet territory was devastated by the scorched earth policy
and the huge battles between mechanized armies on a scale never
before seen. Total hum an losses were estimated as at least twenty-
six million while there were vast num bers o f other casualties as well
as homeless and displaced victims of the fighting.
Nevertheless, despite the unprecedented tasks of reconstruction
which lay ahead, the Soviet Union em erged from the war as a
m ajor world power, stronger in relative term s than before. This
was because of the tem porary elimination of Germany and Japan
and the effects of the war on W estern Europe and on the British
Empire. T he bureaucratic regime of Stalin was not only able to
consolidate itself in the Soviet Union, it was also able to extend its
grip over Eastern Europe in a belt o f buffer states defending its
W estern frontiers.
RECONSTRUCTION
T he first post-war task was to rebuild the shattered economy in

the occupied and war-stricken territories, priority being given to
the industrial base. Preparations were thus rapidly put in hand to
draft a Five-Year Plan for reconstruction and developm ent for the
period from 1946, which became the Fourth Plan. It was followed
by a Fifth Five-Year Plan for the years 1952—55. Both these plans
followed similar lines; essentially they were a continuation in aim
and m ethod o f the pre-war plans and were heavily m arked by Stalin’s
approach to economic questions. T he emphasis was on the priority
growth o f heavy industry, great stress being laid on the high targets
set for iron and steel, coal and petroleum , the output of which still
seemed to m easure the degree o f industrialization of a country
and its economic power. This required high rates of investment
as productive capacity was built up, and fu rth er sacrifices for the
civilian population in such m atters as housing. Large num bers of
constructional projects were put in hand using all available labour,
including prisoners of war and political prisoners. Targets were set
71
in quantitative term s - tons or num bers o f articles - and industrial
m anagers received bonuses on the basis of plan fulfilment.
It was once again a case of extensive industrialization, covering
the country with constructional sites. T he kind o f problems
encountered were those o f shortage o f supplies and o f proportional
growth of different interrelated sectors of industry. T he high rates
o f growth recorded in the early post-war plans partly reflected the
fact that wartime losses were being m ade good and that the country
was still being endowed with basic production facilities. Moreover,
official claims o f plan-fulfilment in this and subsequent plans were
based on inflated statistics, concealing short-falls in some critical
sectors and the excessive num ber of unfinished projects. T he
exaggeration was particularly flagrant in the case of agricultural
production, as was to be revealed by Khrushchev soon after Stalin’s
death. T he hand of Stalin was also to be seen in grandiose schemes
to transform nature by growing shelter-belts of trees, and changing
the course o f rivers (with disappointing results).
Stalin’s successors took over the Fifth Plan at a time when the
economy was facing new problems which the old m ethods were
incapable o f solving. While they inherited a powerful industrial
economy, ranked as the second in the world, its strength lay mainly
in heavy industry and was concentrated in old-style production
technologies. In pursuit of aggregate growth, the ‘steel-eaters’
had not only neglected consumers, but newer types of industry
such as petro-chemicals, plastics and electronics had also fallen
behind world standards. T he Soviet Union was still building the
type o f industry which would have been advanced in the 1930s
when planning had begun. Research and developm ent had been
selectively concentrated on some fields, to the neglect of others.
Agriculture had been sadly neglected and still bore the marks
o f forced collectivization in the lack-lustre perform ance of the
peasantry and the shortage o f livestock.
Tense struggles for power took place in the top leadership,
and it took some time before changes could be made. Khrushchev
eventually em erged as the dom inant figure. Ebullient and irascible
he saw the need for change and introduced some reform s, to no
great effect. T he Sixth Five-Year Plan, introduced in the crisis year
of 1956, was abandoned after a year and replaced by a Seven-Year
Plan. At the same time, w hether to gain popularity or because he
underestim ated the weaknesses of the Soviet economy, Khrushchev
im proved on previous boasts to catch up and outstrip the capitalist
countries in output and living standards. In an effort to overcome
72
the grain crisis he launched the virgin lands project and sponsored
maize-growing on a large scale. T he expected results were not
forthcom ing and, after hanging onto power for several tense years,
he was replaced in 1964 by Leonid Brezhnev as the head of a m ore
orthodox bureaucratic team which grew subsequently old in office,
to form , by the early 1980s, a veritable gerontocracy.
MODERN SOVIET INDUSTRIALIZATION
U nder Brezhnev, the customary Five-Year Plans were resum ed, and
Soviet planning generally retained the centralized character which it
assumed u nder Stalin, despite repeated ‘reform s’. T he developm ent
o f m anufacturing production continued to be regarded as the hub
of industrialization; theoretically this has been taken to imply the
incorporation o f the latest technical and scientific achievements
into production and the constant im provem ent of plant and
equipm ent. In practice, partly because Soviet industry had already
begun to fall behind un d er Stalin, this aim has not been realized
throughout industry as a whole. Some older industries have become
technologically obsolescent and some newer ones have been u n d e r
represented. T he greater sophistication o f advanced technology
and the m ore complex organization required to make use of it,
have imposed strains on the m anagem ent structure. Meanwhile, the
cracking pace o f arm am ents competition with the capitalist world,
as well as the increasing dem ands of consumers for more, better,
and an increased range o f goods, have m ade conflicting dem ands
upon resources.
PRESENT-DAY PROBLEMS
By the 1960s, the Soviet Union could no longer boast the highest
growth rate in the world. Growth rates in the m ore recent plans
have been set at m ore m odest levels, usually at 4 to 5 per cent for
national income as a whole. To m aintain these rates, considerable
resources continue to be channelled into investment, and the
consum er rem ains at the end of the queue behind the military
and heavy industry. In an attem pt to overcome deficiencies in
73
some industrial sectors whole plants have been purchased ‘keys in
han d ’ from foreign firms, such as the car factory in Togliattigrad,
equipped by Fiat.
T here are no longer the virtually unlim ited supplies o f labour
power available during the first Five-Year Plans, while additional
supplies o f basic materials such as coal, steel or oil become m ore
costly to obtain. T he phase of extensive developm ent ended with the
death of Stalin and no real solution has been found to the new prob
lems presented by intensive development, able to satisfy consum er
dem and without sacrificing other goals. T he rulers are no longer
dealing with a new, raw labour force; and the repeated emphasis
on material incentives has become something of a boom erang.
W orkers want better supplies of goods in retu rn for their efforts.
T he regim e’s leaders are constantly calling for an im provem ent in
labour productivity, apparently without very m uch success; yet it is
adm itted that the Soviet worker only produces about half as much
as his American counterpart. T he difference is accounted for
largely by the level o f mechanization and organizational efficiency
rather than by the subjective attitude of the worker. T he need,
therefore, is for still m ore investment in labour-saving machinery.
Meanwhile, dem ographic trends are reducing the supply o f new,
youthful workers - at the very time when new draughts of labour
are required to develop natural resources in rem ote places such as
Siberia and the North. T here is, however, still an untapped labour
reserve in agriculture. Approximately one-fourth of the labour
force is still employed on the state and collective farms. In addition,
every harvest sees a mass mobilization o f city workers to assist in
gathering in and transporting grain. With all the investment that
has gone into the agrarian sector and grandiose projects, such as the
opening up o f the virgin lands, grain supplies rem ain inadequate
except in years of exceptionally good harvest. Livestock products
are still in deficient supply and of indifferent quality. Failure to
solve the agrarian problem still dogs and restricts the bureaucracy.
Because the difficulties still rem ain, it is impossible to shift labour
from the land to relieve the growing labour scarcity in industry and
resource-developm ent.
It may be said, therefore, that the Soviet Union remains
under-industrialized and suffers from a chronic problem o f u n d e r
production. Labour scarcity has now become a m ajor constraint on
increasing output. All the same, there is evidence that labour is
wastefully used in industry and in other forms of work. This may
be because factory m anagers like to have a reserve o f labour power
74
to meet peak dem ands, for example, when the final effort has to
be m ade to m eet plan targets (‘storm ing’, as it is called). It may be
because Soviet workers have a security of employment and cannot
easily be dismissed. Also, lack of mechanical aids, such as fork-lift
trucks or power-tools, means that many m anual and menial jobs
still exist, representing a waste o f labour.
Despite the Soviet U nion’s record o f growth, it is still in the
process o f catching up with the advanced capitalist countries in
per capita terms. Although there are very advanced industries in
the Soviet Union, in some vital sectors such as computers, plastics
and oil technology it is behind the capitalist countries and depends
upon them for m achinery and technical know-how. T he lag in
the case of industries directly serving consum er needs remains
particularly apparent, despite efforts in this sphere in recent
years. Many consum er goods are unobtainable, in short supply or
disappear into the black or grey markets. Soviet leaders repeatedly
refer to ‘shortcomings’ in m anagem ent and labour productivity,
castigate the waste o f productive assets, the disproportions between
different sectors and the excessive num ber of incomplete projects in
hand. Despite the attention o f the press, and reform s in economic
adm inistration m ade over the years, these ‘shortcomings’ continue
to figure in all discussions of Soviet economic perform ance.
Between 1964 and 1985, under a succession of ageing leaders,
the economy of the Soviet Union settled into a routine which
bordered upon stagnation. T he rate of growth of production and
productivity slowed down. Consequently, living standards improved
only slowly and rem ained well behind those in the United States and
W estern Europe. Although Brezhnev and his successors spoke of
these problems, especially the slow growth of labour productivity,
the remedies either rem ained at the level o f exhortation or failed
to shift the economy into a higher gear. With inertia, complacency
and even corruption in high places the public response was largely
one of indifference and cynicism. Confronted by what was seen
as a warlike threat from a rival system, military expenditure on
conventional and nuclear weapons constituted a m ajor drain on
resources, absorbing perhaps 12—14 per cent of GNP. Undoubtedly,
unlike the case with many consum er products, military procurem ent
officers were able to insist upon the highest quality standards. T he
developm ent of ever m ore sophisticated weapons systems absorbed
scientific and technical m anpow er as well as industrial capacity which
m ight otherwise have gone into m uch needed industrial investment
to increase the output o f consum er goods. However, the quality
75
o f defence supplies as well as the achievements in space research
showed what the planned economy was capable of.
While some part o f the responsibility for the faltering economic
perform ance o f the 1980s can be blamed on the arms burden, it was
clearly not the only reason. Much of the explanation was to be found
in the overcentralized, bureaucratic and irresponsible planning
system still basically unchanged from the Stalin era. Although that
was clear enough to many Soviet economists and even to the party
leadership, it was not clear along what lines it could be improved
and reform ed, and even less how widespread popular enthusiasm
could be harnessed to the task. Moreover, the economy was not in
a state o f collapse; it continued to grow, if m ore slowly than before.
Its failures and inefficiencies were daily becoming m ore obvious. In
its own interests the bureaucracy had to find ways o f dealing with
these problems. It needed to find some way of at least limiting the
drain of arm am ents on the economy —which required some form
o f agreem ent with the United States. It also needed to improve
the efficiency of the planning system while seeking to involve large
sections of the population in an effort to m odernize the economy
with the promise o f higher living standards, and perhaps greater
political freedom.
These tasks devolved upon the new general secretary o f the party,
Mikhail S. Gorbachev, who took over in March 1985. He initiated a
reform program m e which stirred worldwide interest and promised
to bring changes in Soviet life on a scale not known since the 1930s.
In some ways the new leader continued reform efforts begun by his
predecessors, but he did so on a wider and m ore ambitious scale and
in an atm osphere o f greater freedom o f discussion and criticism.
His aim was to speed up economic growth; a new version o f the
old slogan o f catching up with the capitalist world. This was to be
done through a whole series o f reform s o f the planning system and
industrial m anagem ent aimed at providing greater flexibility, m ore
room for innovation and initiative and greater discipline. Changes in
top personnel were intended to restore confidence in the leadership.
How far the Gorbachev reform s will go rem ains to be seen. It seems
likely that the basic planning apparatus will be retained, but that
m ore power will reside with plant managers. W hat is envisaged
seems to be a re-arrangem ent o f the economic hierarchy, specifying
responsibilities m ore clearly and offering m ore scope for initiative.
More controversially, certain private and cooperative business
activities have been legalized; they include a wide range o f services,
repairs and handicrafts, the aim being to satisfy consumers. In many
76
cases activities carried on illicitly have now been legalized. T here are
strict limits on these new types o f private enterprise, particularly as
far as those eligible for employment are concerned.
More im portant for the long ru n will be the extent to which the
changes in the planning system will facilitate the tackling o f the
m ajor economic problems confronting the Soviet economy in the
closing years o f the twentieth century. These comprise, notably, the
m odernization o f the older sectors o f industry and the building up of
entire new sectors based upon applied science and new technology.
This will require a heavy burden of investment comparable to that
in the early Five-Year Plans and, at least in the short term , will limit
the output o f consum er goods which can be expected. Resources will
have to be channelled into machine-building and construction to
carry out this trem endous task o f m odernization and re-equipm ent.
It will require m uch technological borrowing and capital im port
from the advanced capitalist countries. T he question arises, then,
o f how such imports can be paid for. In most fields the quality
and variety o f Soviet products will have to be greatly im proved if
they are to compete on the world market. Here, too, there is need
for renewed detente to make possible the diversion of resources
from arms production into the productive sectors of the economy.
Gorbachev thus has a twofold task: to reform the economy while
improving relations with the capitalist world.
SOVIET INDUSTRIALIZATION AS A MODEL
D uring the 1930s, a characteristic model o f industrialization

appeared in the Soviet Union, which was in sharp contrast with what
had gone before. This model was adopted by, or imposed on, the
East E uropean countries which came into the Soviet orbit after the
Second W orld War. It was the model followed in China after 1949
and still has an influence there despite the Maoist repudiation of
some o f its features and subsequent concessions to m arket forces.
Plans in countries which rem ained basically capitalist, such as India,
have been influenced by techniques first used in the Soviet Union.
Nevertheless, today it is widely recognized, even in the Soviet Union,
that the model has defects and it is now unlikely to be imitated
elsewhere. In summarizing these defects, it may be said that they
stem from excessive centralization, the concentration o f power in
the hands of an irresponsible bureaucratic regime, and disregard
77
for consum er needs. These defects have led to others and have
been com pounded by waste and m ism anagement on the part of the
ruling bureaucracy. This is not the place to consider w hether some
different course would have been possible, or what changes should
be m ade in the planning system, but only to appraise the role it has
played historically.
E V A L U A T IO N A N D IN T E R P R E T A T IO N
Thus it m ight seem good enough to say that the Soviet system did
make possible the industrialization o f a still backward country, and
did so at a rapid rate. Nevertheless, since the sacrifice in hum an
term s was so great, it m ight well be asked w hether the end result
was worth it.
A nother point of view sees post-1928 industrialization as taking
over where Tsarism had stopped at the time of the First W orld
War. Some historians have spoken of a ‘second take-off (the first
being the ‘great spurt’ o f the 1890s). A comparison between the two
suggests that there were im portant qualitative as well as quantitative
differences. Industrial growth un d er the Tsarist regime had not
brought about a fundam ental structural transform ation of the
entire economy, nor is there proof that it would have been
able to do so; rather did industrialization generate forces which
m ade a political overturn o f some kind virtually inevitable. This
was because the political system and the social relations of the
old regime blocked the all-round developm ent of the productive
forces, the fu rth er surges of growth on a wide front necessary
for successful and complete industrialization un d er conditions of
backwardness. Even without involvement in a war which taxed it to
breaking point, it is difficult, then, to see how the old regime could
have long survived into the twentieth century. If not a proletarian,
then a bourgeois revolution, sooner or later would have occurred;
the question remains, however, w hether a regime o f the latter type
could have solved the problems it would have inherited. As it was,
the successor regime claimed to be based on the working class, but
it could not avoid shouldering the tasks o f m odernization which in
m ore advanced countries had devolved upon the bourgeoisie. T he
strain o f carrying out the tasks o f a bourgeois as well as o f a socialist
revolution in a backward country, without support from abroad,
notably from proletarian states in the m ore advanced countries,
78
created the specific historical conditions for the rise of the Stalinist
bureaucracy and for all the terrible, and needless, sacrifices which
followed. T here was nothing inevitable about this process; it was
the outcome of a political struggle in the Soviet Union and of a
particular constellation of international forces.
With the victory o f Stalin, industrialization was given a particular
course and governed by a particular mechanism of planning (or
pseudo-planning) which, in its main features, has been conserved
to this day. Once industrialization had begun in this form - at
breakneck speed and un d er conditions of virtual seclusion from
the world m arket - some specifically Russian factors have to be
taken into account. T he first of these centred around the fact that
some basic industrialization (more than in China by 1949, say) had
already been achieved. Once reconstruction had been completed
during the early 1920s, this was clearly an asset. Foreign workers
and technicians in the Soviet Union at this time were often struck by
the m odernity o f the plant inherited from the past, often com paring
favourably with that with which they were familiar in the m ore
advanced countries. Not only was there this technical basis, but
there was also a cadre of skilled workers and administrators. One
o f the features of the 1930s was the rapid increase in the num ber of
qualified engineers, technicians and managers. O f course they had
to have teachers, but, although some of these were foreigners, most
were Soviet citizens. Moreover, the Russian intelligentsia was highly
educated and contained many rem arkable personalities. T here was,
of course, a brain drain of those hostile to the new sytem. O thers
stayed, although they might not altogether agree with the system;
they carried out their professional work or even cooperated with
the planners. T he high level of debate on economic and political
questions which took place while discussion was relatively free in
the 1920s inside the Party, and in the planning organisms (where
there were many non-Party experts), reflected the quality of this
intelligentsia. Much o f this hum an capital was wantonly squandered
by Stalin in the following decade; and intellectual standards in some
fields suffered, with adverse economic results. Stalin supported
charlatans like Lysenko in biology and blocked the developm ent
of cybernetics. O n the credit side, the new regime put considerable
resources into campaigns of mass literacy and into education and
training of all kinds, thus raising the educational level of the
population as a whole. This investment has clearly paid off; a
lesson which some countries, such as India, have failed to learn, to
their cost.
79
Ju st as Tsarist Russia was able to benefit from the advantages of
the latecomer, by taking over m odern technology and im porting
the latest plant and m achinery from the most advanced countries,
so the Soviet Union was able to do the same even when it was
pursuing a policy o f economic isolation. Industrialization in the
1930s would not have been possible without such borrowing and
the purchase o f plant and machinery which Soviet industry at that
time was incapable o f producing. This practice has continued (as,
for example, in the cooperation with foreign firms in the building
of complete new factories). Indeed, the Soviet Union was unable to
insulate itself from the world m arket even in the time o f Stalin. As the
economy has become m ore complex and diversified its dependence
has grown and participation in the international division o f labour
has been accepted as necessary and desirable. Rapid growth would
not be possible on any other terms.
On the other hand, Soviet industrialization did not make use of
foreign financial aid, nor did it borrow on any appreciable scale as
other industrializing countries have done. Im ported machinery and
other goods have thus had to be paid for with materials or m anu
factures which m ight otherwise have helped to raise consumption
levels at home. In any case, until recently, foreign capitalists were
reluctant to lend to a regime which threatened their system (at least
in their view) and which had repudiated Tsarist debts as one o f its
first actions (thus freeing itself from a considerable burden).
Self-reliance has been a feature of Soviet industrialization. This
has been facilitated by the very size of the country, by the variety, and
in some cases the richness, o f its natural resources. However, these
resources were (and are) not as abundant as is sometimes supposed.
They are often located in peripheral areas; their extraction often
poses enorm ous difficulties because of harsh climatic conditions
and their transportation to m anufacturing centres is costly. In the
earlier period, forced labour was sometimes used; although it was
not necessarily economical. Only a regime of the Stalinist type could
have used such methods. Grandiose schemes followed from the
nature of the regime, regardless of the hum an cost. Stalin, deified
by the Party, promised to change the climatic conditions of entire
regions by the growing o f shelter-belts; Khrushchev initiated the
‘virgin lands’ scheme in an effort to solve the grain problem. T he
form er did not come off; while the success of the latter was dubious.
Khrushchev’s successors denounced his ‘harebrained schemes’ and
have themselves been m ore cautious. It is doubtful w hether they
could resort to the high-handed m ethods of Stalin.
80
Irresponsible bureaucratic control not only imposed an enorm ous
and unnecessary hum an cost on the Soviet masses, but also led to
incalculable material waste in carrying out the huge constructional
projects of the early Plans. Despite these heavy overhead costs, a
powerful industrial base was built up, often seeming to become
an end in itself during the Stalin period. T he surplus product
sweated out of the workers provided a large part o f the investment
required for growth. Agriculture, likewise, was sacrificed. At times,
consumption standards were almost intolerably low and still
com pare unfavourably with those in the advanced capitalist world.
T he ruling bureaucracy took pride (and still does) in gigantic
m odern plants, quoting the statistics of industrial production to
justify its stewardship. T he privileged of the regim e never go
short and receive a disproportionate share o f what consum er
goods are available. They have their dachas (country retreats) and
limousines, while for many people housing conditions rem ain poor
and queues and shortages are a fact of life. However, it is probably
doubtful w hether even in the worst times there was such inequality
as is common in most ‘developing countries’ today and it may be
less than in the advanced capitalist countries. Nevertheless, by the
1930s, the privileges and prerogatives of the ruling bureaucracy
were great enough for it to be reasonably claimed that the
principles o f the revolution of 1917 no longer applied. T he type
o f industrialization adopted by Stalin, as the representative and
chief of the new ruling layer, had m ade this inevitable. In fact,
no alternative pattern o f consum ption or style o f life to that o f the
advanced capitalist countries was then, or subsequently has been,
proposed. Soviet industrialization was seen as a process of catching
up, not o f transcending. It was to provide people with what was
already available to many in capitalist society; the privileged were
served first, others in accordance with the value put on their work.
T he supply of goods was, however, m ore or less the same. T he
Soviet people want what is already available in capitalist departm ent
stores and superm arkets. Warsaw Pact generals sip Coca-cola while
watching manoeuvres.
Perhaps for history Soviet industrialization will be best rem em
bered simply by the fact that within the space of a generation
it transform ed the predom inantly peasant and still relatively
underdeveloped land of the Tsars into a m odern industrial giant,
second only to the U nited States in aggregate industrial production.
In economic term s this was m ade possible by an unprecedentedly
high rate o f investment, a claimed twelve-fold increase in the net
81
stock of capital between 1928 and 1967. T he pre-war build up of
basic industry could be said to have yielded its main results, after
reconstruction o f the damage resulting from the Second W orld War,
in the following decades of steady, rather than spectacular, growth.
According to official claims, by 1978 the Soviet Union accounted
for 20 per cent of world industrial production, against only 5 per
cent in 1928. T he immense build-up of the means o f production,
represented by such figures, required the creation o f a huge new
working class, now approxim ately one hun d red million strong,
from a people previously m ade up predom inantly of peasants
only a generation or so away from serfdom. Rapid growth was also
facilitated, in the past, not only by the flow of new recruits from the
countryside, but also by a high rate of population increase and the
greater participation of women in the labour force. Once this labour
arm y was harnessed to means o f production incorporating m odern
technology, and endowed with new skills, there is no mystery about
how the Soviet economy was able to grow as it did.
It has been shown, however, that the process o f industrialization
remains incomplete, the resources pinned down in a still inefficient
agriculture rem ain excessive, labour productivity lags well behind
the best capitalist levels. As for the economic mechanism itself,
this raises a whole area of theoretical discussion. T he plans are
centralized, imposed from above after the fashion of a comm and
economy, and leave little or no room for the masses to make
their wishes felt, despite official claims to the contrary. Attempts
have been m ade to improve them by various reform s, notably by
encouraging m ore initiative on the part of plant managers, and by
laying down m ore refined criteria for the carrying out of plans. In
practice, however, the bureaucracy is unable to remove the defects
of the existing planning mechanism or to overcome the frequently
denounced ‘short comings’. Even with com puters and m odern
input-output techniques a faultless plan cannot be draw n up. The
problem with the plan is that it is rem ote from the people whose
activities it determines. It is not a response to their individual and
collective requirem ents. T hat is a political rather than an economic
weakness, and one which can only be overcome by substituting
democratic control from below for centralized decision-making
by an all-powerful technocratic-bureaucratic centre. In discussions
about over-centralization and the introduction of greater regulation
through the m arket, the hum an and political aspects tend to be
overlooked. T he question really is w hether industrialization is to
be geared to the needs and wishes o f the people, or is to provide
82
what the planners think they should have. It is not only a problem
in the Soviet Union. It rem ains to be seen how far Gorbachev (or his
successors) will be capable o f prom oting a perm anent new course
while m odernizing the planning system.
83
CHAPTER FOUR
India’s industrialization:
problems and pitfalls
T he experience o f industrialization in India is characteristic o f the

difficulties faced by a newly-independent underdeveloped country.
Industrialization in India has taken place as a conscious policy of
growth un d er the leadership of an indigenous political elite, after
a long period o f colonial rule. While some problems were specific
to India, arising from the inherited social structure and cultural
patterns, many were comparable to those found in other countries
at a similar stage of development. In particular, India has tended
to become the test-case for economic developm ent without social
revolution, within the fram ework of a mixed economy. Indian
planning has not set out to supersede private ownership and
the operation of m arket forces. T he country rem ains part o f the
capitalist world m arket in a relationship which is clearly dependent,
especially where finance and technology are concerned. While it is
clear that there could be no replication of the industrialization path
of the advanced countries, points of similarity, as well as contrast, do
arise with other countries at different periods, notably Japan, China
and the Soviet Union. They will be apparent in the following case
study.
At the time o f independence in 1947, India was undoubtedly an
underdeveloped country with one of the lowest per capita incomes in
the world. About 75 per cent of the population was engaged in agri
culture which contributed 50 per cent o f national income. Factory
industry employed about 2 per cent o f the working population and
contributed only 6.5 per cent o f the national income. In addition,
about three times as many people worked in cottage and workshop
industries contributing some 9.6 per cent of national income.
84
India*s industrialization: problems and pitfalls
Despite the predom inance o f agriculture, the very size o f India
gave the industrial sector some significance. It was a basis to work
on after Independence. However, the question clearly arises as
to why industrialization had not advanced beyond a preliminary
stage u nder British rule. This question cannot be separated from a
fu rth er one which concerns the disappointing overall perform ance
in the subsequent decades, despite fu rth er build-up of industry. The
answers to both these questions seem to lie in the lack o f structural
transform ation to remove blockages in the way of development,
especially in the agrarian sector, and in the lack o f a resolute policy
to carry out the proclaimed aims o f the governm ent - to abolish
poverty and to create a m ore equal society. As a result, the vast mass
of the Indian people, who have shown astonishing patience, have
experienced little or no im provem ent in their welfare, while the
gains o f the economic growth so far achieved have been garnered
by the fortunate minority.
T o understand the problems of Indian industrialization it is
necessary to examine the results of British rule. W hen this was
imposed over the sub-continent from the latter half o f the
eighteenth century, the new rulers displaced the form er Moghul
conquerors while leaving intact the traditional economy or, at least,
only slowly underm ining it. T he Moghuls, as a military aristocracy,
had been mainly interested in extracting the agrarian surplus by
means of the land revenue. This surplus, instead of being used for
productive purposes, served to m aintain the military establishment
and the consum ption of the mainly urban-based ruling class. T he
Moghuls were not interested in owning and im proving land after
the fashion of the English land-owners. Ownership rights rem ained
with the village community, itself a largely self-sufficient productive
unit, carrying on agriculture un d er conditions where there were few
means and little incentive to invest in improvement.
T he surplus represented by the land revenue gave rise to urban
handicrafts of a luxury type carried on mainly by labour-intensive
m ethods in small units o f production. T here was, however, little
interchange between town and country. Most of the needs o f the
rural population were m et by local craftsm en, often part of the
village community receiving payment in the form o f a share in
the product. T he H indu caste system regulated everyone’s place
in society and an intricate division o f labour had grown up on
the basis o f a m ultitude of sub-castes, or jatis. H igher castes,
besides enjoying social prestige, were also, generally speaking,
the economically better off. At the bottom o f the scale were the
85
pariahs, or untouchables, who form ed an hereditary pool of labour
for the perform ance of unclean, menial and m anual tasks. Besides
the priestly Brahmins, warriors and peasants, the caste system also
provided for m erchants who were able to enrich themselves and
accumulate capital within the pores of M oghul-dom inated India.
M erchants, w hether from the H indu trading castes or from
other communities, were circumscribed in their operations by the
conditions of Indian society. T he m arket in the villages was small
in the absence o f m uch disposable income. T here was m ore scope
for profit in monetizing the agrarian surplus and in catering for
the needs of the ruling class. T here were also some opportunities
in foreign trade. Once m erchants had become wealthy there was
probably some social pressure on them to consume lavishly or to
hoard. T here were limited possibilities for investment in industry
and additional risks to be faced. M erchant capital was hardly likely to
venture fu rth er than the buying up of the output o f traditional craft
industries. T he abundant labour supply discouraged technological
innovation. T here was no standardized mass m arket, transport costs
were high, and thus there was no incentive to produce on a large
scale. D uring the eighteenth century, the export trade came to be
dom inated by foreign merchants. Soon India was to experience the
effects of the industrialization of other areas in the swamping of
the m arket with machine-m ade low-priced textiles and a dem and
for prim ary products. This not only hit the Indian craftsm en who
were working near the ports and even some way into the hinterland,
but also m eant that exports could not act as an engine of growth,
and that Indian capitalists were faced with powerful competition
from foreign capital. Economic policy had meanwhile passed out
o f Indian hands and was shaped by the interests of the British Raj.
T he British had no positive policy for Indian economic
developm ent, but they did not deliberately set out to restrict it.
Although some ‘deindustrialization’ accompanied the extension of
their rule, it is doubtful w hether India was on the way to becoming an
industrial country. O f course, ajapanese-type developm ent was now
ruled out, and by the early nineteenth century India had become a
captive m arket for Britain as well as a source of revenue, through
the land and other taxes, to pay for the new military-bureaucratic
structure. A brake was put on whatever autonom ous forces for
change may have existed, and Indian developm ent was now very
m uch determ ined by the relationship with the world m arket arising
from British imperial control. This m eant that a smaller proportion
o f people found em ploym ent in industry than m ight otherwise have
86
India's industrialization: problems and pitfalls
been the case, while the relative weight o f agriculture tended to
grow (a process which continued to some extent into the twentieth
century). T he way to industrialization was thereby blocked, though
it does not follow that industrialization would have taken place had
India not come un d er British rule.
THE BEGINNINGS OF CAPITALISM
U nder the conditions which prevailed in India in the early

nineteenth century, there was no possibility of the artisan-craftsmen
taking control of a larger share of production, accumulating
capital, and becoming capitalists and employers of labour. On the
other hand, some of the barriers to capitalist developm ent which
had existed un d er the Moghuls had now been broken down. A
greater degree of law and ord er prevailed. Im proved transport
facilities brought about greater economic integration. T he growth
of im port-export trade gave opportunities for the Indian m erchants
to extend their operations in the hom e m arket in a subordinate
capacity and in spheres which the British did not enter. T he steady
rise of the Indian m erchant class, recruited from traditional H indu
trading castes and other communities, was a feature of the period.
By the 1850s, some members of this class were seeking outlets for
their capital in industrial investment. T he first cotton mills were set
up by Bombay m erchants in the 1850s. In the meantime, however,
the cheap cotton textiles o f Lancashire had taken a firm grip on
the Indian m arket, so had some other im ported m anufactured
goods. Equipm ent for these mills, as well as for railways and other
installations built by the British, came from abroad. T he old urban
luxury industries of Moghul times had disappeared or declined and
the new rulers largely consumed im ported wares and in so doing
influenced the consum ption style of wealthy Indians as well. But the
mass of the people rem ained poor, the internal m arket for textiles,
dom inated by Lancashire, was m ade up o f many small purchases.
Local industries were affected in different ways; many adapting
themselves to changing dem and and using new materials. Certainly
they were not destroyed by a huge influx of im ported m anufactures
which most Indians would have been too poor to buy.
T he effect o f the changes m ade in the land system was
to generalize private and contractual relations. Land became
87
a commodity, instead o f a communal asset which was part o f
an unchanging way o f life. T he way was clear for the growth
of tenancy though without an immediate change to capitalist
agriculture. T he new landlords created by British legislation were
primarily interested in obtaining a share o f the surplus, not in
reorganizing production. While the direct cultivators slipped into
debt and dependence they had to support absentee landowners,
interm ediaries and m oneylenders who m ade no contribution to
agriculture but enjoyed social power and prestige. Although by
the twentieth century agriculture showed many variants, from
the capitalist plantation employing wage-labour, the large market-
orientated farm , to the dw arf holdings o f the poor peasants, there
was no sweeping change as a result of British rule. Many of the
traditional features o f village life showed rem arkable continuity.
However, while many peasants were concerned mainly with survival,
others m ade an adjustm ent to m arket opportunities. T he result was
considerable stratification and the existence in many places o f a
dom inant group of better-off peasants and landowners, generally
from the higher castes, together with a mass of ‘dw arf-holders’ and
landless or semi-landless villagers.
T he object of the British Raj was to ensure that the colony
should pay the heavy bill for its administration and defence and
provide a source o f profit through trade. T he East India Company
had originally been interested in selling Indian products, such as
tea and opium, in foreign markets. With the growth o f industry
in Britain, the once im portant export of Indian cloth came to an
end and India was opened up as a great m arket for Lancashire’s
m achine-made textiles. A fter the Mutiny and the winding up of
the Company in 1857, India was draw n m ore closely into the world
m arket, then dom inated by Britain. T he building o f railways, the
im provem ent o f ocean shipping and the opening of the Suez Canal
in 1869 speeded this process, and at the same time confirmed
India’s economic dependence. T he Indian m arket was kept open
for British imports, facilitated by the railways, and growing world
dem and encouraged investment in prim ary production either from
plantations or by the commercialization of peasant agriculture. It
was no part of the design o f British adm inistrators to develop the
country economically, but their policies, what they did as well as what
they refrained from doing, helped shape the economic structure.
At this period the m odern sector was mainly concentrated in the
port cities which grew as centres o f im port-export trade. They drew
in foreign capital to build docks, harbours and warehouses as well
88
as constructing railways. As they became centres o f population,
so they attracted service trades and industries, as well as British
banks and commercial firms. Since India was not regarded as a
colony o f settlement, this population was predom inantly Indian
and the growth of the port-cities, m ore than anything else, with
the possible exception o f education, was a vehicle through which
Indians were introduced to m odern - E uropean and capitalist -
forms of organization.
T hus it was that, while on the one hand the developm ent
of the port-cities had an enclave character, they also fostered a
symbiosis between Indian m erchant capital and foreign capital.
They introduced Indians to the ways o f E uropean society and were
the gateways through which the forces that were to transform Indian
society could flow. Thus the way in which these cities grew was not
altogether alien to India; indeed, they opened up new opportunities
to Indians for trade and employment, enabling them to acquire
knowledge o f W estern business m ethods and industrial techniques.
The British could hardly have prevented this even if they had
wanted to. As it was, Indian m erchant capital was complementary
to British capitalism in India; Indians were needed in subordinate
positions in the adm inistration as well as the army. British firms
had to train Indians for a variety of jobs of a kind not available in
the old society. Indians were able to learn from and emulate their
masters; in the long ru n it was inevitable that they would come into
conflict with them.
This process o f culture contact, emulation and conflict took place
unevenly and was spread over a considerable period of time. At
first it affected mainly communities outside the H indu or Muslim
mainstream (such as Parsees or Jains) or H indu m erchant sub-castes
to whom it offered new possibilities of profit-making. Indian family
businesses were active in assembling prim ary products for export,
or m erchandizing im ported m anufactured goods in the hinterland.
British capital occupied the com m anding positions in foreign trade,
shipping, banking and insurance. Successively, throughout the
nineteenth century, other business groups, mainly from traditional
trading sub-castes (especially from the north-west, like the Marwaris
and the Gujeratis) pushed forward, consolidating what became a
distinctively Indian capitalist class. As elements in this class grew
wealthier and m ore self-confident they moved into new fields,
including industrial investment, where it was m ore difficult to avoid
a collision with the alien rulers. It was the latter who determ ined
policy in such fields as the tariff, railways, the currency and the
89
purchase of governm ent stores. Moreover, the Raj constituted a
heavy drain on India’s resources and this blatant fact began to
sharpen nationalist feeling.
British capital was draw n to India in search of profitable
investments, but the openings were relatively few. A part from
railways, which gave a guaranteed rate of return, investors had to
face unpredictable risks. Primary production was the safest bet for
British capital, perhaps with some processing to follow. T here was
little scope for investment in industrial production serving the hom e
m arket, or in production for export, which would be in competition
with British exports. T he main articles, apart from those locally
produced, purchased by the peasant masses, were textiles. T he
Lancashire industry had tapped this m arket very successfully in the
earlier part of the nineteenth century. A limited am ount o f British
capital did go into the Indian textile industry, but the Indian-owned
mills, until 1914, produced mainly the coarser varieties o f cotton
textiles. These were exported to countries where they would not
be in direct competition with the Lancashire exports. N either the
civil service nor the British capitalists in India had any interest in
building up a self-supporting industrial structure in the colony.
British capital was orientated towards the world m arket and it was
in trade that money was to be made. Teaching Indians m odern
technology was no part o f the white m an’s burden; they would
have to fend for themselves. Political power and influence were
used to favour British firms or to discriminate against Indians (as
in shipping, for instance), but otherwise the policy o f the Raj was
not a positive one. In short, within the overriding interest of Britain
in India as part o f the world Em pire of the time, capital flows were
left to m arket forces.
In other words, w hether that capital derived from British or
Indian sources, it obeyed the law of profit. Fields which might
seem too risky, or to promise too low a retu rn to Europeans, m ight
be attractive to Indian capital, given the lack of alternative outlets
arising from the policy of the Raj. As long as we are talking about the
trading castes and communities, there seems to have been little inhi
bition derived from religious scruples or cultural restraints which
could have influenced business dealings. T here was a long-standing
trading tradition and the Indian m erchants were able pupils. On
the other hand, the social stratification by caste, which was especially
prevalent in the rural areas, did have some negative effects, though it
is difficult to disentangle them from those which arose from poverty.
T he caste system and religious feeling probably limited the area of
90
recruitm ent for entrepreneurs, though it did not prevent peasants
from being rational calculators if they were producing cash crops.
Merchants, traders and money-lenders were often strangers, alien
to the communities am ong whom they did business.
W hat deterred m ore Indian capital from investment in industry
were basically the same factors that accounted for the lack of British
investment: low income levels, high distributive costs, doubtful risks
and lack of tariff protection. Also, in some industries, relatively large
am ounts of capital would have been required and investment would
only have been profitable if there was some hope of an export m arket
(as there was, for instance, in cotton textiles and especiallyjute). T he
linkage effects (that is, the influence which growth in one industry
or sector exerts upon others through their interdependence) of
railway construction were largely felt by Britain. T he lack of a
machine-making industry was not necessarily a result of British
policy, as there would have to be a substantial user industry to
make investment in it worthwhile. It was a long time before Indian
capital was adequate in volume to diversify into m ore advanced
branches of industry, and not until after the First W orld W ar that
it was able to do so on an appreciable scale. Even after the Second
W orld W ar it was not able to do so on a scale adequate to initiate a
full-blooded program m e of industrialization. Hence the acceptance
o f state planning.
It should be rem em bered that the British Industrial Revolution
m ade itself felt in India largely by its disadvantages; that is to
say cheap m anufactured goods took over the m arket u nder the
protection o f imperial rule. As we have seen, industrialization in
India was not an autonom ous process; it came in as an im port, or
rather some o f its components (like the railways) were im ported on
a piecemeal basis with different results from those in the country of
origin. By its very nature, British capital was incapable o f prom oting
Indian industrialization; it was simply not profitable to do so. T he
alternatives were m uch m ore attractive, especially investment in
trade and in prim ary production. These were safer and m ore
profitable than industrial investment could have been. Investm ent
in this form , however, kept India dependent and underdeveloped.
This was not a deliberate policy imposed by the Indian civil service
but rather one which arose inevitably from the relationship
between a backward country and the most industrialized country
o f the time, u nder conditions of imperialism. A lopsidedness was
im parted to the Indian economy as the necessary legacy of British
rule. India acquired some of the features of advanced capitalism but
91
Industrialization in the non-Westem world
without that thorough reshaping of agrarian relations and society
as a whole which had accompanied the rise o f capitalism in the
metropolis. It was the kind o f situation Marx had in m ind when he
spoke o f a country which ‘suffers not only from the developm ent
of capitalist production, but also from the incompleteness o f that
developm ent’.
British imperialism thus perm itted a limited growth o f capitalism
in India and the em ergence of a local class o f capitalists searching
for profitable opportunities. M arket factors determ ined the pattern
and am ount of investment within the context of foreign rule and
the peculiarities of India’s social institutions and culture.
In the second half o f the nineteenth century, a factory industry
had been established in cotton and in jute. Both flourished com m er
cially, largely on the basis o f exports. They used local raw materials
and a low-paid industrial proletariat was recruited from the villages.
T he m achinery and chemical products were im ported, mainly from
Britain. In the cotton industry, a leading role was played by Indian
capital (though British capital was certainly not absent) but the ju te
industry was mainly British controlled. Indian capital was partly
channelled through m anaging agencies; that is, British firms having
a contract to m anage the factories. These industries dem onstrated
a num ber o f im portant points. It became evident that Indian
capital was not reluctant to go into industry where profits could
be expected. In addition British capital was not deterred by the
thought of competing with firms at home; Indian mills were, in any
case, equipped readily by British machine-makers. Moreover, it was
shown that Indians could manage m odern industrial establishments
and the bait of regular wages could draw poor peasants into factory
work in India as well as in Europe.
At the same time, as has already been seen, objective factors in
the Indian environm ent limited the kind and am ount of industrial
investment likely to be profitable. Industry could not count on
tariff protection or any other special benefits from the state. T he
successful industries were in consum er goods (jute, o f course, was
largely used as packaging material) but were not dependent upon
hom e dem and (although, in the case o f cotton, dem and began to
increase in the early part o f the twentieth century). T he result
was that, although before 1914 India was perhaps unique among
underdeveloped countries in having an organized sector (factories)
partly un d er native ownership, as well as railways, ports, banks and
other attributes of a m odern economy, these rem ained localized
in their influence. To put it another way, they had not initiated a
92
genuine process o f industrialization or fundam entally transform ed
the agrarian structure.
Indeed, although part of agricultural production was hinged to
the m arket, there was no shift o f population out o f agriculture; if
anything the proportion o f the population dependent on the land
tended to rise. T he existence o f some advanced industries did little
to raise per capita incomes or to initiate economic growth. Indian
capital was too weak to transform the Indian economy. British
capital could have financed large-scale industrialization but had
no incentive to do so. British capitalists looked upon India as a
captive m arket and a supplier o f raw materials and foodstuffs to
the world m arket. As for the British governors of India, they were
concerned to m aintain the imperial interest through the raising of
revenue to m eet the military and financial commitments they had
made on India’s behalf but without her consent.
RESULTS OF THE FIRST WORLD WAR
T he First W orld W ar drastically underm ined the relationship

established in the nineteenth century between Britain and her
Indian possessions. D uring the war, India provided m anpower
and material which had to be paid for out o f revenue raised
in the country. At the same time, the curtailm ent of imports
opened up fresh possibilities for the investment of Indian capital
in m anufacturing industry, and a num ber of new factories were set
up in fields such as glass and chemicals. T he dem and for munitions
gave a boost to the small iron and steel industry founded partly for
nationalist reasons before the war. W artime inflation and specula
tion arising from scarcities offered fu rth er opportunities for capital
accumulation by Indians while worsening the financial position of
the governm ent. T he cotton industry took advantage of the situation
to build its sales in the hom e m arket in the face of growing Japanese
competition in the Far East. T he war-time experience strengthened
Indian capital, reinforcing the dem and for protection and a m ore
positive governm ent policy towards industry. In 1916 an Industrial
Commission was appointed to enquire into possible new openings
for the profitable employment of Indian capital and to see what
assistance the governm ent m ight give. Although its report m ade in
1918 envisaged a m ore active part for the state in industrial devel
opm ent, little came o f its recom mendations. T he ending o f the war
and the placing of industrial m atters un d er Provincial jurisdiction
93
by the Governm ent of India Act of 1919 both contributed to the
lack of any tangible follow-up.
T he war brought about an all-round weakening o f British im peri
alism and underm ined the old relationship with India. At the same
time it intensified the conflict between Indian and British economic
interests and strengthened the nationalist movement, enabling it to
sink popular roots and make m ore radical demands. Concessions
had to be made, especially in the shape of tariff protection for
Indian industries on a selective basis.
In the 1920s Britain could no longer export capital to India at the
pre-1914 rate. At the same time, the continued flow o f interest and
other receipts from India helped to mask the weakening of Britain’s
financial position. Although India continued to be a sheltered
m arket for old-style exports facing sharper world competition,
and rem ained the largest single m arket for Britain’s exports down
to the 1930s, its im portance in relative term s declined significantly.
By the end of the 1930s, Britain supplied a little over 30 per cent of
India’s im ports com pared with m ore than twice that figure before
1914. T he new growth industries in Britain showed little interest
in the Indian m arket while industries like cotton were now facing
stiff competitive pressure from Indian producers.
Meanwhile, India’s role as an earner of foreign exchange to
bridge Britain’s deficit with the rest of the world had virtually ended.
Britain still had a substantial financial stake in India and the Indian
arm y rem ained crucial to the strategy o f British imperialism but the
links with India had changed in nature and were weaker than they
had been. Britain’s economic difficulties were greatly to the advan
tage of Indian capitalists, some o f whom had done very well out of
the war. They sought to play a greater role especially in industry,
but found that the imperial connection posed a barrier to their
aspirations. Businessmen thus tended to become m ore committed
to the nationalist cause because only a governm ent of their fellow
countrym en could offer them the conditions for the accumulation
and investment o f capital which they desired. On the one hand, the
financial burdens imposed by British rule became m ore oppressive,
on the other hand British interests in the relatively small but crucial
sector of organized industry were still predom inant if declining.
T he world depression of the 1930s hit India hard, as an exporter
o f prim ary products, through a fall in prices and the deterioration
in the terms o f trade. T he general slow down in the economy
reduced dem and for such products as coal. On the other hand,
im port-substitution continued to buoy up hom e-m arket dem and
94
for cotton and some other m anufactures. T he Governm ent of India
tried to handle its financial problems by a policy of deflation and
by holding the rupee at a parity which Indian critics declared to be
over-valued. These measures could only worsen the effect of the
depression. T he export of capital from Britain to India was arrested
and some repatriation of capital took place. Even the extension of
tariff protection could do little to overcome the sluggishness o f the
economy.
If India did not experience the depression as severely as did the
advanced capitalist countries, or experienced it in a different way, it
was because there was no large industrial sector or a predom inantly
commercial agriculture. T he basic problems o f the Indian economy
were not transitory ones of a cyclical nature but were a product of
secular stagnation and the poverty and low purchasing power of the
peasant masses. While depression in the early 1930s worsened the
position o f industrial producers, the recovery in the following years
mainly benefited industrial producers and the better-off urban
consumers. Indeed, there was some expansion of hom e-m arket
dem and and Indian entrepreneurs responded with investment in
new industries as well as in the m ore traditional ones. T he period
saw the appearance o f a m ore definite ideology of industrialization
in business circles, as well as am ong the mainly intellectual leaders
o f the national movement. T he two sections tended to draw closer
together on the basis that India’s problems could only be overcome
by the building up of an industrial base and by its diversification.
Strangely enough, the figurehead o f the National Congress, M ahat
ma Gandhi, stressed the dangers o f large-scale industry and the
virtues of small-scale handicraft production within the fram ework
of the self-sufficient village.
Despite Gandhi, powerful objective forces were working against
any general adoption of his proposals. Although some Indian
businessmen, as well as Congress leaders, wore hom espun and did
their daily stint of spinning or weaving, in practice they accepted
that industrialization was the corollary of independence. If there was
any doubt on this question it was to be dispelled by the experience
o f the Second W orld War.
RESULTS OF THE SECOND WORLD WAR
Standing as it did between two theatres o f war, and then directly

threatened by Japan, the full strategic im portance of India for the
95
British Empire was revealed. For the strategists in London, India was
to be a source of m anpower, a military base camp, and also a source
o f supplies for the arm ed forces, in accordance with its resources and
potential. A massive contribution to the war effort was dem anded
and imposed, against considerable nationalist opposition. Part of
the expenditure involved was met by the governm ent of India from
taxation and loans; Britain’s share was credited to Indian accounts
in London. As a result of these transactions, by the end of the
war, not only had India’s debt to Britain been wiped out but the
sterling balances had reached the sum of about £1,300 million. T he
Second W orld W ar therefore resulted in a fundam ental change in
the financial relationship between the metropolis and the colony.
India was no longer a debtor, but a creditor, and there had been
an irrem ediable deterioration in Britain’s world position.
In the course of the period 1939-45, India experienced the
consequences of war economy: inflation, civilian shortages and
the setting up of a network o f governm ent controls. Large armies
had to be m aintained and supplied and there was a considerable
growth in industrial production as a result. Moreover, some kinds
of production were encouraged in India to m eet the needs o f the
imperial war effort. T he inflation was a consequence of increased
governm ent dem and financed by an increase in the money supply;
most goods were in short supply and their prices soared. Industry
received lucrative contracts for materials and equipm ent on govern
m ent account. T here was no corresponding flow of civilian goods
onto the m arket to match the money incomes created. M erchants
and industrialists found unprecedented opportunities for profit,
while price rises, shortages and actual fam ine worsened the lot of
the people, most of whom had little or no interest in the outcome
of the war.
Industry was harnessed to the war machine by an array of
governm ent controls, similar to those operated in Britain and the
other belligerent countries. In contrast with its past, rather passive
role, the governm ent now encouraged new types o f industry, placing
contracts at guaranteed prices and purchasing practically the entire
output of some industries such as leather, footwear and wool
textiles. Only limitation o f capacity and the difficulty of obtaining
new machinery and equipm ent from abroad - India’s lack of a
machine-making industry was now revealed as a serious weakness —
prevented the growth in output from being far greater. T here were
also scarcities o f materials, o f skilled labour and technicians. T he
governm ent was thus reaping the fruits of past neglect. W hen short-
96
run considerations prevailed, no attem pt was m ade to establish the
m ore advanced types of production, such as m otor vehicles, ships
and aircraft, arid projects put forw ard by Indian entrepreneurs
were turned down. Consequently, the war accelerated industrial
growth without bringing about a structural transform ation. T he
wartime need for prim ary products also tended to reinforce India’s
traditional position in the international division o f labour.
T he experience of the Second W orld W ar proved to be frustrating
to those Indian businessmen who had hoped that it would provide
an opportunity to diversify the economy and especially to build up
a heavy industry. Nevertheless, it did enable them to extend their
operations and to accumulate capital on a scale which would not
have been possible in peacetime. Further, Indian capital was able to
consolidate its position relative to British capital. With Britain now
in debt to India, the Raj had ceased to be the paying proposition
it had been. T he growth of nationalist feeling, and with it the
power o f the Indian National Congress and the All-India Muslim
League, m ade it improbable that the old relationship, un d er which
India paid excessively to be governed by foreigners, could ever be
restored. British rule could not have been m aintained without the
use o f military force and at enorm ous cost. At the end o f the war
the decline in the strategic and economic im portance of India for
Britain, in itself m ade such an attem pt futile.
T H E B R IT IS H W IT H D R A W A L
As this was accepted by the British governm ent, so the steps were
taken which paved the way for a peaceful handing over of power to
the two rival nationalist movements. Consequently, when the final
departure of the British took place, although it was followed by
horrendous communal blood-letting and disorganization resulting
from large-scale population movements, there was no social revolu
tion. T he nationalist leaders who assumed control of independent
India and Pakistan, took over the existing machinery o f governm ent
in a peaceful transition. Despite the rhetoric, in most respects social
and economic life went on as before. In the main, the new leaders
assumed the role o f the form er masters of India, taking over the top
rungs o f the adm inistration and, apart from measures against the
princes, leaving the existing distribution o f property and power as
it had been u n d er the Raj. State power was now exercised by a new
97
elite, draw n from the intelligentsia and property-ow ning classes,
most of whom were from the higher castes. Congress rule, once it
had become established, led to an alliance between the urban-based
bourgeoisie, with its specifically Indian characteristics, and the rural
notables consisting o f the better-off peasants and landowners, also
in the main from the higher castes.
In the absence of a revolution of the type which took place a
year or so later in China, there was no change in property relations.
Land reform was left to the provincial governm ents and in practice
brought few changes. W here agrarian revolts took place they were
suppressed. T he deeply-rooted problems of Indian society which
the new governm ent inherited were seen as m atters to be dealt with
by legislative reform s and administrative intervention, rather than
through the involvement of the mass of the population itself. T he
passivity and resignation of the peoples of India, tem porarily broken
during the struggle against the British, now seemed once m ore to
predom inate as hopes of significant changes were not realized.
PLANNING
T o be sure, the Congress governm ent adopted economic planning

from an early stage, with the intention of speeding up the
industrialization of the country. Even this was not a great innovation;
it was only spelling out a long-held tenet o f nationalist doctrine,
that the state’s proper role was to prom ote industrial developm ent
and not to rem ain indifferent to it, as had been the case u n d er the
Raj. Seen as an administrative m easure to be applied from the top
downwards, the kind of planning initiated in India rem ained lifeless
at the grass-roots level. It was an intellectual exercise to be translated
into practice by bureaucrats, largely rem ote from the concerns o f the
people. In its early stages, at least, the need for a plan was accepted
by business as well as by Congress politicians and great hopes were
placed upon planning in the period o f euphoria and national
consensus which followed the achievement of Independence.
T he antecedents of Indian planning can be found in the
discussion during the 1930s provoked by such examples as the
Five-Year Plan of the Soviet Union and Roosevelt’s New Deal.
T he influence o f Marxism, and perhaps m ore o f Keynesianism,
can be seen as contributing to its theoretical side. T here seemed no
way in which an economy suffering the effects o f colonialism and
98
underdevelopm ent could industrialize through m arket forces alone.
T he investment effort required, especially in the field of heavy
industry, public utilities and general infrastructure, was beyond
the capacity o f private capital. On the other hand, businessmen
recognized that without such an effort there would be very definite
limits to private investment and accumulation. Congress set up a
National Planning Committee, presided over by Jawaharlal N ehru,
in 1938, but its activities were brought to an end by the war. A
num ber of prom inent industrialists put forw ard what was known
as the Bombay Plan in January 1944. It resembled Soviet plans in
its emphasis on heavy industry and on the central im portance of
achieving rapid rates o f growth. Not only did it influence the plans
draw n up after Independence, but it was also significant in showing
that an im portant section of India’s capitalist class endorsed central
planning. However, the Bombay Plan, and rival plans put forward
by the Gandhians and the trade unions, were little m ore than
statements of intention. N either the theoretical fram ework nor the
administrative m achinery for planning were worked out until after
independence.
In its Industrial Policy Resolution of April 1948, the new regime
m ade it clear that it envisaged a positive role for the state, mainly in
the key and basic industries, leaving the rest of the industrial field
in the hands of private enterprise. Indian planning was thus to take
place as part of a mixed economy. This was the understanding on
which the Planning Commission was appointed in March 1950. Its
main task was to draw up a draft plan for the five-year period
1951—56. Like subsequent plans, it set forth a num ber of desirable
social goals which planning was to ensure. These include adequate
livelihood for all, together with a proper distribution o f wealth and
income. It assumed that through planning, India could take on the
attributes of a welfare state setting a m inimum standard below which
no one should fall. In the first place, however, it was necessary to deal
with the adverse results of wartime dislocation and of partition, for
which projects already existed in the ministries concerned. Although
the plan was intended to lay the foundation for m ore rapid economic
growth, the am ount of new public investment was on too modest
a scale to initiate a real industrialization drive. Priority was given to
raising the output of food and raw materials and taking up the
unused capacity in consum er goods industries.
T he actual results achieved in the five-year period differed
from the plan targets in a num ber of respects. They were assisted
by favourable monsoons which eased the food supply position.
99
A lthough India was able to draw on the sterling balances, little
foreign aid was forthcoming. Actual investment outlays were less
than those proposed, especially in some im portant fields such as
irrigation, electricity supply, iron and steel and aluminium. T he
overall result was a rise of 18 per cent in national product and an
increase of about 30 per cent in industrial output. T h e planners
were encouraged to set m ore ambitious targets for the next plan; it
had also become clear that a m ore concerted industrialization drive
depended upon state investment in the heavy industries.
T he shift in emphasis between the First and Second Plan was
reflected in the new Industrial Policy Resolution adopted in April
1956. While in some ways it only reiterated the 1948 resolution, it
spelled out m ore clearly the comm itm ent to industrialization on the
basis of a mixed economy. T he Resolution claimed to represent the
adoption o f a ‘socialist pattern of society’ and enum erated a series of
industries involving investment on a scale which only the state could
provide. These industries were to be progressively state owned, or
the state was to take the initiative in establishing new undertakings.
Those industries not explicitly m entioned were to rem ain within
the sphere of private ownership. T he resolution also called for the
coordination of the two sectors, following the view of the First Plan
that ‘private enterprise should have a public purpose and there is
no such thing un d er present conditions as completely unregulated
and free private enterprise’.
T he language of the resolution reflected a compromise between
the socialist phraseology of the Congress intelligentsia and the
practical necessities of Indian businessmen. T he latter were in no
position to project or finance a program m e o f industrialization;
only the state could do that. For electoral reasons, to avoid
being outflanked from the Left, the Congress leadership had
to avoid giving the impression that it was opening the gates for
capitalist development. Conflicting interests and pressures became
m ore intense in the years which followed. Many businessmen and
Congress supporters became openly hostile to creeping socialism
from the state sector. At the same time, in the practice of
the mixed economy the state sector seemed to be the servant
of private interests. As governm ent policy became increasingly
sensitive to private interests it became evident that the state sector
was not to be the com m anding height from which a socialist policy
could be implem ented. N ehru himself declared that as long as
privately-owned industries were well m anaged ‘we see no need for
nationalization at any tim e’.
100
T he resolution envisaged a certain interm ingling o f the private
and public sectors, as well as the possibility of jo int enterprises
between the state and Indian or foreign business capital. As far
as planning was concerned, however, the state could obviously
only determ ine the allocation o f investment and resources and the
targets for output in those industries which it controlled. Since the
state industries would be mainly in the producer goods sector, those
consum er goods industries likely to benefit most from an expansion
o f dem and and to be most profitable in the short run, were to be left
in private hands. Such industries would only be developed so far as
they promised to be profitable; as long, that is to say, as there was
an expanding m arket for their output. So far as the state industries
brought about an increase in the rate of economic growth and raised
per capita incomes, they would contribute to the profitability o f the
private sector. O n the other hand, there was no compulsion for those
who accumulated capital as a result of rising real income to invest
it in socially desirable ways. T he pattern of investment, and thus
o f production, in the privately-owned consum er goods industries
would be determ ined by the laws o f the m arket and would reflect
closely the distribution of income. This was to be shown in the
outcome o f subsequent plans.
W hat could be achieved in the way of industrialization from the
m ethod of planning adopted in India was thus limited from the
outset. But it was even m ore constricted by the social structure of
the country: the vast inequalities already in existence, and the fact
that, so far as industrial goods were concerned, the mass o f the
people had a minimal am ount o f purchasing power, or none at all.
Unless something was done to improve the levels of their incomes
practically all the gains of industrialization would go to the higher
income groups.
However, every plan, including the Second Plan, announced as
am ong its main objectives the reduction o f inequalities in wealth
and income to be achieved through state action and redistributive
taxation. W hat the planners failed to perceive was that the kind of
economic measures they proposed (which emphasized economic
growth, however investment was allocated between producer goods
and consum er goods) could not reduce income inequalities and
m ight even tend to increase them. Only direct social measures could
counteract and reverse such a trend. It had to be accepted either
that the balance between the state and private sectors proposed
in the oddly-nam ed ‘socialist pattern’, m ade the social goals o f the
Plans unattainable, or that there had to be direct action against the
101
existing unequal distribution of property and income. To assume
that econpmic growth if m aintained long enough would end poverty
and unem ploym ent and bring about a m ore equal distribution of
income was a vain pretension. T here was an inherent conflict
between the declared ‘socialist’ objectives o f the Plans and the
methods employed.
THE SECOND PLAN AND AFTER
T he planning models used from the Second Plan onwards were

greatly influenced by Soviet examples as regards the allocation
of investment and the expected consequences for output. In the
Soviet Union, however, planning operated on the basis of a totally
nationalized industry and a collectivized agriculture. In India, the
professed aim of the Congress governm ent was to steer a middle
course between capitalist m ethods and those used in the Soviet
Union. T he Plans may be appraised individually against their own
stated aims and from a technical point o f view it may be ju dged how
far they achieved them. H ere the main emphasis will be on the plan
period as a whole from 1956 onwards, to determ ine how far they
m ade possible the industrialization of the Indian economy.
It may be said at the outset that although India claimed to
have em barked upon ‘democratic’ planning, this m eant no m ore
than that there was a parliam entary system, and that the degree
of compulsion embodied in the plans rem ained consistent with the
maintenance of private property. In practical term s it was a policy
of counterfeit socialism; this could be determ ined by the failure of
successive plans to carry through a structural transform ation, or to
change the distribution of wealth and income in a m ore egalitarian
direction. Planning has rem ained rem ote from the people, since
they have had no share in drawing up the plans or any part in
carrying them out except as executants of commands from above.
T ru e it could be claimed that there has been a lack o f sustained
pressure from below to prom ote far-reaching changes, or that such
pressures have been contained within the repressive fram ework of
the state. Most significantly there has not been a determ ined drive
from above to bring practice into line with the professed intentions
of the plan. Land reform s have not been carried out on a significant
scale; income distribution has not become m ore equal; poverty and
unem ploym ent rem ain endemic. Yet, in term s of overall aggregates
102
there has been growth both in industry and in agricultural produc
tion. Thus a kind of industrialization has been taking place in India
u n d er the aegis of the Plans, and the rem ainder of this chapter will
attem pt to characterize it m ore precisely.
MODERN INDIAN INDUSTRIALIZATION
In the absence of a powerful hom e-m arket dem and, which could
only have come had there been a structural transform ation of the
rural sector, industrialization in India had to begin from the top.
A fter the First Plan, therefore, the planning effort was concentrated
on building up the capital goods sector. At the time, this seems to
have been acceptable to businessmen, who had long bewailed India’s
deficiencies in this respect, and to nationalists, since a heavy industry
seemed to be a necessary step towards economic independence and
a basis for a long-term program m e o f industrial development. It
was assumed that adequate supplies of food would be forthcoming,
that one-fourth of the finance required would be available from
foreign sources, and that no m ore than one-fifth would come from
deficit financing. T he increased consumption resulting from the
incomes generated by governm ent outlays would come to a large
extent from the cottage and small-scale industries of the traditional
type. Indeed, from this period dates a steady expansion of small
capitalist businesses. T he medium- and larger-scale firms in the
private sector were subject to governm ent licensing o f capital issue
and plant construction. Customs protection and foreign exchange
restrictions safeguarded high-cost import-substitution industries
from being swamped by foreign competition. Controls operated in
a rather negative way to limit the operation of the laws of the m arket,
giving rise to a bureaucratic apparatus with some corruption and
considerable evasion. Businessmen became increasingly averse to
these controls and sections of business came out in open opposition
to the planning system.
T he Second Plan encountered difficulties. India’s resources
in foreign currency were rapidly drained away; the food supply
situation deteriorated; and inflationary pressures began to display
themselves. Continued industrialization thus became dependent
upon foreign aid, mostly in the shape of loans. Foreign assistance,
while also needed to make good the deficits in the fo|pd supply
consequent upon poor harvests, may be seen as an alternative to
103
curtailing investment in heavy industry, squeezing consumption
more, or making a radical alteration in policy (especially in the
agrarian sector). It operated, therefore, to preserve the political
institutions and distribution of social and economic power as they
had em erged after the handing over o f power by the British in
1947. In any case, the priority accorded to heavy industry, though
designed to increase self-reliance in the long run, required heavy
imports of plant and machinery (about two-fifths, in fact) while the
growth of the indebtedness m eant that there was a need to increase
exports. By the end of the Second Plan, in 1961, over one-fifth of
the cost had been financed by foreign assistance.
Industrial production went up by 41 per cent in the course o f
the Second Plan the main gains being in electric power generation,
iron and steel, fertilizers, cement and coal. Supplies o f factory-made
consum er goods for mass consumption increased scarcely at all.
Moreover, instead of increasing at the expected 1.5 per cent per
annum population growth had averaged 2.5 per cent.
T he T h ird Plan, which covered the period 1961 to 1966, followed
similar lines to its predecessor in its emphasis upon the building
up of the basic industry complex for the production of industrial
material and capital goods. It aimed to raise national income by 5
per cent per annum , and to achieve self-sufficiency in food-stuffs.
T he Plan docum ent m ade the references which were to become
m andatory to the aim o f combating unem ploym ent, overcoming
poverty and making possible greater equality of opportunity and
a better distribution o f income, wealth and economic power. Plan
technique had improved, personnel had been trained and the plan
machinery had been ru n in but objective difficulties were looming
larger.
T H E T H IR D PL A N
T he T hird Plan, on m uch the same lines as its predecessor,

envisaged continued industrialization, prom oted by high rates of
investment in the public sector and with heavy industry leading
the way. In the outcome, however, the plan experienced severe
setbacks and the results were disappointing: there was a falling off
in the rates of growth o f industrial production and per capita real
income. Two bad harvests upset the objective o f self-sufficiency in
food grains, and India became dependent upon US grain supplies
104
under Public Law 480. Overall, the am ount of foreign aid utilized
was twice as much as the Second Plan; India’s dependence upon
foreign aid now* seemed to be irrevocable. T he m ajor goods of
mass consumption (such as cotton, sugar and vegetable oils)
showed virtually no increase in output although population growth
continued as rapidly as before. On the other hand, the kind of
factory-made goods bought by those with higher incomes were being
produced in greatly increased quantities. T he ‘dem onstration effect’
was working; with it foreign firms and im ported technology began
to play an enhanced role in industry, with governm ent approval.
More ominously, India’s pretensions as a great power inheriting
the role of the Raj in the region caused friction and conflict with her
neighbours: a border clash with China in 1962 and war with Pakistan
in 1965. This imposed a heavy defence burden for m odern weapon
ry, as well as for a standing army of about one million with another
800,000 police and para-military forces. T he war with Pakistan led
to a virtual cessation of economic aid and forced the devaluation of
the rupee. Instead o f going on with the Fourth Plan, already in p rep
aration, the governm ent declared a ‘plan holiday’ and until 1969 the
Fourth Plan was replaced by annual plans. In any case, there was a
shift away from the earlier form o f planning. An influential section
of business re-asserted its confidence in m arket forces, denounced
the interference of the bureaucracy in economic m atters and called
for greater reliance on incentives to private investment. T here was
a down-grading o f the Planning Commission as a source o f policy.
In form ulating economic measures m ore emphasis was laid upon
the states rather than the centre. While the central governm ent did
not hesitate to intervene in the food m arket and in banking greater
support was given to increasing production even if that m eant
concessions to private enterprise and foreign capital. Increasing
pressure was coming from such institutions as the W orld Bank to
curtail ambitious public sector program m es and give m ore scope
for private enterprise with priority to agriculture, notably through
the introduction o f high-yield seeds and the package m aking up the
‘G reen Revolution’. T he social goals o f the Plans were conspicuously
neglected in practice.
T he plan holiday period was generally one of retrenchm ent. Exist
ing core projects were completed while the comm encem ent o f new
investments with a long completion period was deferred. Foreign
capital im port and aid were resum ed following rupee devaluation.
Considerable excess capacity now appeared in the capital goods
industries established during the earlier plans. T he cutback in
105
public investment did not see private investment filling the gap. A
serious problem throughout this phase of Indian industrialization
was the reluctance o f private capital to enter into new industrial
projects on the requisite scale. Some private industries were
adversely affected by the curtailm ent o f governm ent spending;
there were bankruptcies and unemployment. Im ported goods,
including plant and machinery, became dearer in rupee terms.
This gave some incentive for import-substitution, especially in those
goods consumed by the top 10 or 15 per cent of income-receivers.
Real wages stagnated or even fell. Overall industrial production
rose by only 12 per cent from 1966—69, while per capita income
was virtually stagnant and actually below the 1964—65 level. In any
case, in India, per capita income figures have scarcely m ore than a
symbolic value and reveal practically nothing about the welfare of
the great majority of the people. T he benefits o f planning so far
had been imperceptible as far as they were concerned.
T he new Plan, launched in 1969, was intended to change this state
of affairs by increasing the rate of growth in industry by utilizing
existing capacity m ore fully and starting new projects. T he aim
was an industrial growth rate of 8-10 per cent annually, together
with an increase in agricultural production and the elimination of
dependence upon food imports. More scope was to be allowed for
the private sector, notably through the relaxation of controls. This
time, the intention of doing something for the rural poor and the
underem ployed and unem ployed was spelled out even m ore plainly
than in previous plans. Once again, however, it has to be reported
that little progress was m ade to overcome poverty and the additional
jobs created by the Plan absorbed only a fraction of the newcomers
to the labour market. T he new Plan was also intended to halve the
am ount of investment financed from foreign sources by cutting
down on non-food imports and increasing exports. As much as 78
per cent of the new investment projected was to be raised without
resort either to foreign borrowing or deficit financing.
T he hopes placed upon the Fourth Plan were almost totally
frustrated by shortfalls in investment and production at home,
the effects o f the second war with Pakistan and the adverse
changes in the world economy. T he combination o f the slowdown
in world trade and production, the four-fold increase in oil prices,
and currency instability, together with the internal difficulties, hit
the economy hard, slowing down growth, aggravating inflation
and accentuating a social-political crisis which culminated in Mrs
G andhi’s declaration o f a state o f emergency in 1976. In the event,
106
then, the growth rates attained in the 1969-74 period were below
those estimated in the Plan. This tendency to fall below anticipated
targets, indeed, a general slowing down of growth was to be
characteristic of the 1970s during the Fourth and the Fifth Plans.
A retrospective view of this decade provides an opportunity to
draw some conclusions about the course of India’s industrialization
so far. Politically there seems to have been a general down-grading
o f the Plan and a growing dependence upon m arket forces
with pragmatic governm ent intervention in such fields as food
distribution. While the building up of some basic industries was
seen from the start as the main motive force for industrializing
the economy as a whole this has clearly not worked out in practice.
T he industries concerned have not im parted to the economy, as a
whole those high rates o f growth characteristic o f the Soviet Union
and Japan. T he Fourth Plan aimed at a rate of 12 per cent per
annum in organized industry and the Fifth Plan aimed at 8 per cent.
Growth rates recorded were 3.25 per cent in the period 1965—70 and
around 2.75 per cent in 1970—74. In the mid-1970s, national income
was growing at about 3.6 per cent per annum. While these rates could
be considered respectable com pared with those of some advanced
countries during the same period they fell a good deal short of what
was necessary to make even a dent in the problems of mass poverty
and unemployment.
Instead of the basic industries being the locomotive for growth
and the prom otion of a structural transform ation, the main trends
in the economy seem to be determ ined by factors operating in the
opposite direction. T he slow-down in growth has been most appar
ent in iron and steel, mechanical engineering and cement, while
the fastest rates of growth have been scored by consum er goods
industries geared to the top end of the m arket, from synthetic fibres
and cosmetics to air conditioners and refrigerators. As already noted
for an earlier period, mass consumption industries have rem ained
relatively stagnant. In other words, m arket forces have taken over.
T he product-m ix o f industry corresponds to purchasing power in
a society with an extremely unequal distribution o f income. T here
is a large enough m arket m ade up of the minority (10 or 15 per
cent) with discretionary purchasing power for industrial products
to encourage investment in certain kinds o f production. At the
same time, most of the rest of the population can afford few,
if any, of these products. Industrialization has thus not drawn
the population as a whole into its orbit; it has stopped\ short of
a structural transform ation. Steel mills, m odern factories, banks,
107
offices and luxury flats rear up against a background of unrelieved
mass poverty and abysmally low living standards. It would be unduly
optimistic to expect that the m odern sector will gradually absorb
the ‘traditional’ sector. In fact there is no sign that the proportion
of the population in the m odern sector is growing at all.
It can only be concluded that the Plans have failed to achieve
their professed and repeated objectives o f abolishing poverty,
overcoming unem ploym ent and bringing about a m ore equal distri
bution o f income, wealth and social power. They have produced a
partial and lop-sided form of industrialization which only sharpens
regional and class disparities and social contradictions. India has not
found a successful alternative to central planning o f the Soviet or
Chinese types, nor is it an advertisem ent for the ability o f capitalist
methods to transform an underdeveloped country. W hether there
has been too m uch planning or not enough, the hopes held out
for ‘the socialistic p attern ’ —really a mixed economy with capitalist
relations o f production still dom inant - have not been realized.
Dissatisfaction with the results o f planning, especially the alleged
inefficiency, lethargy and corruption o f the state sector, brought
‘liberalization’ into favour after Rajiv Gandhi became prim e
minister. It followed a re-thinking of industrial policy which
reached back to the m id-1970s. T he main target of the reform policy
was the system of licensing and im port controls intended to direct
industrial growth into the desired channels by encouraging infant
industries, conserving foreign exchange and assisting the process of
import-substitution. It was also aimed at the complex system of price
controls applied to some products. T he private sector had long been
chafing un d er the restrictions o f the licensing system and calling for
its reform . Policy-makers were influenced by the fashionable swing
towards free-m arket economics in the W estern countries and the
comparative eclipse o f Keynesianism and o f economic planning.
G andhi’s reform s certainly gave Indian capitalism a boost, notably
through an investment boom, including the im portation of foreign
technology on a m uch greater scale than before. Industrial growth
was pushed up to 9 per cent in 1986-87. T he main, if not the only,
beneficiaries of ‘liberalization’ have been the top 10-15 per cent of
income-receivers who make up the bulk of the consum er m arket
for m anufactured goods. In short, in a program m e o f reform s
which stopped well short o f the privatization o f the state sector,
the rich have got richer and, as before, the mass o f the population
remains outside, or only on the fringes of, the consum er market.
In a country like India it appears that the supply-side theory that if
108
business is offered the freedom o f the m arket it will generate new
wealth which will ‘trickle down’ to the mass o f the people ju st does
not work, at least not for decades. While the policies of Rajiv Gandhi
have produced rapid growth in some sectors and m ade possible an
investment boom, the effect can be expected to wear off after a
short time, resulting, perhaps, in over-shooting and excess capacity.
It may be argued that liberalization has not gone far enough and
that it m ust be followed up by the dism antling of the state sector
and its handir^f over to the big corporations which dom inate the
m odern private sector. To do this would be a political gamble of the
first m agnitude which seems unlikely however well-founded much
of the criticism o f the way in which state industry is ru n may be.
As it is, every surge of growth, such as that produced by Rajiv
Gandhi (threatened in any case by drought in 1988), only exposes
the contrasts and contradictions of Indian society, heightening its
tensions, provoking sectarian rivalries and communal conflicts.
Not the slow working out o f m arket forces but direct measures
o f policy seem to be the only possible way in which the problems
o f poverty, underem ploym ent and unem ploym ent can be dealt
with. It is significant that the recent industrial boom saw not the
creation of new jobs in m anufacturing industry but an actual fall in
employment resulting from technological upgrading. A sustained
rise in the num ber o f urban jobs can only come when the millions
of rural poor gain access to the consum er market.
REASONS FOR FAILURE: THE LACK OF AGRARIAN

CHANGE
Successful industrialization, w hether capitalist or not, has been

associated with fundam ental changes in the agrarian sector. Such
changes have m ade it possible to increase the output of food and
raw materials while releasing labour from the land. In the earlier
stages o f industrialization this means at least a relative decline in
the rural population. Im proved technique in agriculture also raises
incomes and/or makes a larger proportion of the rural population
dependent on the m arket as sellers of farm produce and/or labour
power, thus contributing to the growth of the hom e m arket for
m anufactured goods. In general, then, there is a shift from less
productive to m ore productive occupations, a movement fJrom the
land to the cities. These processes may take place in a variety o f ways,
109
such as the classic preparation for capitalist agriculture in the case
of English enclosures or, at the other extrem e, the collectivization
of peasant farms in the Soviet Union. In other cases, agriculture
has been m odernized without imposing such severe sacrifices on
the peasantry. U nder the pressure of m arket forces operating to
push m arginal cultivators off the land and to attract surplus rural
population into urban occupations by the pull of higher earnings, it
may take place relatively painlessly. O ther variants are possible, such
as the encouragem ent of cooperative farm ing and the developm ent
of small-scale rural industries. In actual historical cases, however, a
proletariat generally has been constituted from the rural population
because there was a m ore or less corresponding growth in the
m arket for labour power through the growth o f industry, whether
in response to m arket forces or to a central plan.
T he point is that un d er Indian conditions the complementary
changes in the agrarian sector have simply not worked out. T he
proportion of the labour force in agriculture has rem ained roughly
stationary during the Plans at about 72 per cent, and has grown
considerably in absolute num bers. At the same time, farm income
has gone up in real term s (by 65 per cent between 1951 and 1971)
while the num ber of ‘dw arf holders’ (below five acres per family)
and of landless labourers has grown. T here are, at the same time,
enorm ous regional disparities between prosperous states such as
Punjab, Haryana and western U ttar Pradesh, and poor ones such
as Bihar, Mysore and Orissa. Rural India has followed the pattern
already shown for the country as a whole: a relatively affluent
minority has experienced definite gains from economic growth
while the incomes o f the great majority have shown little or no rise
and may indeed have declined in the past decade. T hus the mass
of the rural population can afford to buy little if anything in the
way of m anufactured goods or, in the case of land-holders, inputs
which could raise the productivity of the land. While the internal
m arket is kept relatively small there is also little incentive to move
off the land; those who do generally join the many-millioned army
o f the urban jobless.
T he Congress governm ent which took power after Independence
did not justify the expectation that it would carry through an
agrarian reform as the basis for im proving the lot of the vast
majority o f the population. U nder the new constitution this m atter
devolved upon the governm ents of the states; there was no national
policy and thus no uniform ity in dealing with the agrarian problem.
T he main line o f the reform s introduced was to abolish the zamindari
110
and similar landowning systems resulting from British legislation,
and to do away with functionless interm ediaries between tenants
and landowners. T he existence o f an enorm ous variety of different
forms o f tenure m ade the introduction of reform a protracted
process. In any case, the landowners were to retain land in ‘personal
cultivation’; but the m eaning of such phrases was unclear. W here
there were limits on the am ount of land which could be held, the
landowners were generally given plenty o f time to hand over part
o f their land to family members or front men. W here land was
taken over, compensation was paid. Evasion o f the laws, laxity and
corruption in their execution limited their effectiveness. T here were
no sweeping changes, no genuine redistribution of land to those with
insufficient land or none at all, and no alteration in the balance of
social and economic power in the villages. Politicians in the state
parliam ents as well as in New Delhi were too dependent upon the
support and cooperation of the landowners and village notables to
attem pt to make any serious inroads into their privileges. Voluntary
transfers of land were also mainly of token significance.
H alf-hearted as these reform s were, they did lead to the abolition
of interm ediaries in large parts of the country, break up some of the
big estates and provide some tenants with m ore security than they
had enjoyed before. These changes simply m ade possible a fuller
developm ent of capitalist relations. Further, form er zamindars and
big landowners turned to commercial leasing or farm ed part of the
land themselves. T he better-off peasants, belonging to dom inant
castes, already a powerful group in many parts of rural India, were
able to consolidate their position. Unevenly and at different rates
in various regions of the country, agricultural capitalism spread.
T he governm ent assisted the process by irrigation, land reclamation
and the spread of technical knowledge. Im provem ents of this kind
assisted the expansion o f production but tended to increase the
disparities between the big landowners and better-off peasants and
the ‘dwarf holders’, share-croppers and landless labourers who made
up the majority of the village population. Rural change has taken
many different forms; the general tendency has been to substitute
capitalist relations for the old feudal and patriarchal relations
between landowners and peasants.
From the mid-1960s this process was accelerated with the
adoption of the new agricultural strategy based upon high-yield
seeds, artificial fertilizers and water control. This so-called ‘Green
Revolution’ was sponsored by the governm ent u n d er strong exter
nal pressure from the W orld Bank and other institutions who saw
111
Industrialization in the non-Westem world
social and political stability in the future tied up with the creation
o f a prosperous class o f rural capitalists. T o an extent this policy
has worked, at least in those regions where the new capital-intensive
package could be utilized, that is to say on not m ore than 25 per
cent of the cultivated area. Landlords and strong peasants with
capital have gained; im proving land u nder cultivation, acquiring
m ore land, investing in tractors, pum ps and other machinery and
employing m ore hired labour. M arket forces, w hether or not
directly connected with the ‘Green Revolution’ have, at the same
time, furth er underm ined the position of small peasants - owners as
well as tenants, turning some into share-croppers or wage-labourers.
However, there has been no corresponding increase in the dem and
for labour either from rural industries or from the towns. In a
rough and uneven way capitalism has done part of the job that it
has done in other countries in the past, but it has not prevented the
pauperization o f a large part of the rural population, especially in
those regions little affected by the ‘G reen Revolution’. Agricultural
output has been increasing at a rate o f about 2.6 per cent per
annum , against only 0.8 per cent u nder British rule. It has slightly
m ore than kept pace with the growth in population. In fact, in years
o f good harvest there have been surpluses o f food, not because of
absolute overproduction but because the poor have not been able
to buy all they need to ensure an adequate calorific intake (and this
despite governm ent interference in the provision o f foodgrains).
PO V ER TY
Agrarian developm ent in India, while significant in term s of

production, has not com plem ented industrialization to the same
degree as in the countries o f developed capitalism. While in the
favoured regions a rural elite has prospered on an all-India scale
there are two hundred million m ore rural dwellers whose poverty
prevents them contributing to the hom e m arket and whose labour
is not required in industry. They eke out a bare existence from
scraps of land or from perform ing m anual and menial tasks; from
an economic point of view they are superfluous to requirem ents. It
is doubtful w hether developm ent on the present lines, even over a
long period, will provide m uch relief for these underem ployed and
overexploited millions, or draw them into the developm ent process
as productive members.
112
India’s industrialization: problems and pitfalls
Mass poverty in India, in the cities as well as in the rural areas,
is sometimes attributed to the ‘population explosion’. To be sure,
the population o f India has grown at an unexpectedly high rate of
about 2.5 per cent per annum . In broad term s it could be said that
advances in production are eaten up by increasing num bers; but this
is not really so. A disproportionate share of total output goes to the
10-15 per cent o f the m ore affluent people in town and country.
Growing population mainly adds to hum an misery at the bottom
end o f the scale; additional family members are no real problem for
those whose incomes are rising. M oreover, it is easy for politicians
and planners to evade responsibility for their policies, or lack of
them, by taking cover behind the high rates o f population increase.
T he compulsory birth control and sterilization program m es which
took place during the Emergency were a panic attem pt to deal with
a situation which had arisen from decades o f evasion and perhaps
a fear o f the social reckoning likely to arise from overpopulation.
However, population is not an autonom ous factor; it grows out of
and is influenced by complex forces some o f which are susceptible
to alteration through policy measures directed to the economy.
T he experience of the advanced countries shows that a slow down
in population increase accompanies rising incomes. It may be said,
of course, that India cannot wait that long or that such a happy
situation will never be reached. Indians, especially in the rural areas,
have children because they soon contribute to family income, are
a kind of insurance for old age, or are necessary for cultural and
religious reasons. It would also be true to say that high birth rates
and large families depend upon the acquiescence of the women of
India, 80 per cent of whom are still illiterate. It is not only that lack
of education makes it difficult to understand and practise birth
control techniques, it is also because society provides no incentive
to apply them. As long as educational opportunities are not widely
available and women see few alternatives to m otherhood, high rates
of population growth are likely to continue. On the other hand, if
prim ary education were available to all women within a decade or
two a durable downward trend in birth rates m ight begin. India is
now living with her failure to grasp this nettle some thirty years
ago. T he problem is one of policy options, not of some natural and
unalterable laws of population or of unchangeable cultural traits.
T here is still an alternative to a continued frightening increase in
num bers or an ultimate Malthusian catastrophe.
T he taxation of the rich, the carrying out of agrariaî reform
and the tackling of the problems of underem ploym ent and
113
unem ploym ent have all been m arked by an absence of political will
at the tojD and in adequate pressure from below. T he tendency has
been to avoid dealing with root causes and to treat symptoms, and
even then to do so without conviction. This lack of determ ination
obviously has to do with the distribution o f power and influence in
India. T he bourgeoisie, closely allied with the privileged elements
in the countryside, cannot play the same historical role it has played
in the past in other countries. This is true even in the general field
of industrialization. T he erection of some m odern large-scale plants
in heavy industry, the enlargem ent of the infrastructure with public
money, and some assistance to capitalist agriculture do not suffice
to create a m odern economy out of what was left by the British Raj
in 1947. W ithout a m uch m ore concerted drive for industrialization
on a wide front and including fundam ental agrarian reform , neither
the structural transform ation of the economy nor a self-generating
process of growth is possible today. As it is, the benefits o f the
industrial developm ent which has taken place in India since
Independence have not yet reached the masses and the call to
abolish poverty remains unanswered. Industrialization in India has
thus been a limited success; one m ore example of growth without
development.
114
CHAPTER 5
China: the slumbering giant

awakes
Since China is by far the largest country in the world in terms of

population size, it is not surprising that her attem pts to industrialize
have attracted considerable world attention, especially because they
have been accompanied by social and ideological upheavals o f an
unprecedented character. While deeply influenced by the Soviet
model, the Communist regime, after the Revolution of 1949,
under the leadership of Mao Tse-tung, adopted novel approaches
to the problem of industrialization in a predom inantly agrarian
and backward society. His successors, while departing from the
guidelines he laid down, have em barked upon a program m e of
modernization which necessarily has industrial growth as one of
its key strategies. As the population continues to grow, there is a
desperate race to raise output as in other countries similarly placed,
but it is carried on by m ethods which are specifically Chinese.
China evolved its own form of civilization in an historical
process which extends back over at least four thousand years.
In that time, intricate cultural patterns were developed which
had immense staying power. For most o f that time China was
ahead o f Europe in its social organization and culture with its own
political system. In the later European Middle Ages, the countries
of north-west Europe began to move ahead with accelerated speed,
adopting the capitalist mode of production and entering on the
road to industrialization. Nothing like this took place in China as
an organic and autonom ous process. By the time that Europeans
began to batter on her doors seeking profitable trade, they had the
advantage o f a superior technology and military power as (well as of
superior economic organization. Although China avoided colonial
115
status, unequal treaties were imposed by the E uropean metropoles,
bases w^re ceded and the country was effectively divided up into
spheres o f influence. T he foundations o f the old ord er were
underm ined and China entered the twentieth century a prey to
external pressures and internal turmoil. T he old em pire finally
gave way in the revolution o f 1911 but the new republic failed to
establish a viable, centralized regime, falling into warlordism and
civil war, com pounded by Japanese invasion and war (1937—45)
from which the well-organized Communist Party with its peasant
armies and program m e o f social revolution em erged trium phant
in 1949.
From an historical point of view, the first problem is why,
having developed to such a high level, China showed no signs of
em barking on a process o f industrialization before the intrusion of
the Europeans? Why was it that despite the relatively advanced state
o f scientific knowledge and technology and an intensive agriculture
China showed no tendency to generate those forces which make
for capitalism? Why did it fail to find its own way to raise income
levels and prom ote sustained growth? Why was it that labour-saving
machinery and factory m ethods o f production were not developed
in China? Why did China, at least, not follow, or even precede,
Japan in adopting them when they were introduced into Asia in the
nineteenth century? Why was it that the main initiative for economic
change came from outside, from the Europeans, rather than from
within the old order?
These are im portant and difficult questions and scholars
specialized in the field are by no means able to provide complete
or agreed answers. Clearly, there m ust have been factors in Chinese
society which inhibited change and growth beyond a certain point,
a built-in inertia resisting even the strongest pressure. T here was
nothing unique about the conservatism of traditional China; it
was, indeed, a means o f self-preservation for the dom inant social
strata. T he leading role o f an educated body of officials, recruited
by examinations and steeped in the Confucian classics, which gave
ideological sanction to the established order, was an im portant
factor in resisting change. T he m andarin officials were interested in
upholding law and order, in protecting the interests o f the rich and
powerful, since this was the best way to m aintain their own position.
T here were no movements comparable to the Renaissance or the
Reform ation in Europe to challenge orthodoxy, upset the social
order, encourage a m ore individualistic attitude or to stimulate
discovery or invention.
116
China: the slumbering giant awakes
THE OLD ORDER
T he Chinese economy un d er the last two dynasties, the Ming

and the Ching, the latter being that of the Manchus who ruled
until 1911, had reached a relatively high level of sophistication
but it was, in essence a regulated economy, not one determ ined
by the laws of the m arket, Necessarily its basis was agriculture
and, as un d er E uropean feudalism, the surplus product extracted
from the peasantry provided the support for the u pper class of
officials, scholars and gentry. Over a large part o f China, rice was
the main crop; cultivation was thus highly labour-intensive and
required water control involving complex structures and devices.
Land ownership was unequal, with landlords and richer peasants
in each locality dom inating a great mass of small owners and
landless or semi-landless peasants. T he division of plots o f land on
inheritance was widely practised and tended to keep the average size
o f holdings small. T he u pper classes derived their income from the
surplus produced by the dependent peasantry through rents and
taxes, not from a m anorial type economy or the labour of slaves or
serfs.
T hroughout m uch o f Chinese history, land had been relatively
abundant, so that expansion took the form o f new settlements.
By the eighteenth century, however, probably because political
conditions were m ore settled and new crops and improved methods
o f cultivation had spread, the population began to grow m ore
rapidly. This tended to make labour still m ore abundant than
it had been before, and increased the num ber o f peasants with
inadequate am ounts o f land or none at all. This population upsurge,
a m ajor factor in m odern Chinese history, has continued virtually
without interruption down to the present day. In the eighteenth
and nineteenth centuries, population pressure on the land did not
necessarily lead to a decline in per capita income levels but it did
seriously limit any increase in them. Both in agriculture and in
industry —mostly carried on by artisans and in small workshops —
advantage was taken o f the abundance and cheapness of labour to
employ large am ounts o f it, relative to land and equipm ent. China
was a labour surplus economy by this time with labour-intensive
methods generally prevailing.
U nder these conditions, traditional forms of production, which
would have been relatively advanced com pared with Medieval
Europe, and even in the eighteenth century rem ained so cpm pared
with many parts o f the world, held their own and changed only
117
slowly. T he practice o f using large amounts of labour in agriculture,
on constructional projects and in industry was reinforced by
continued population growth. With abundant supplies of labour
available, there was a deterrent to any search for labour-saving
technology. Existing methods of production were capable of
meeting any increase in dem and and there was no rapid growth
in markets to provide a stimulus. T he social surplus, concentrated
in the hands of the state and ruling class, was enough to support
large cities and urban industries, a m erchant class and bankers, but
it still came essentially from agriculture. W hat was lacking was any
new factor or force to prom ote a change in the established order,
which had tended to perpetuate itself over the centuries.
M erchants or financiers who built up large fortunes aspired to
pass into the gentry class or to see themselves or their sons become
governm ent officials. For their part, the gentry landowners had
no incentive to change the existing set-up which secured them in
their privileged position. Markets were large but fragm ented. Long
distance trade was mainly in luxury and semi-luxury goods for the
up p er classes. T he m arket for goods of everyday consum ption was
local and narrow, based as it was upon a mass o f peasant households
with limited purchasing power. T rade and industry also tended to
be closely regulated by officialdom, after the fashion of European
mercantilism. While there was considerable scope for m erchant
capital, and the m erchants at this time probably had a stronger
position in Chinese society than is sometimes suggested, there was
little scope for the investment of capital in industrial production.
This was less a question o f regulation or control than of a simple
lack o f incentive, especially as the abundance o f labour deterred
investment in machines or labour-saving methods. Lucrative outlets
for m erchant capital could be found in other directions. Financiers
and bankers could earn high rates of interest lending to officials
and the gentry and, at a lower level, to the peasants at usurious rates.
T he m ajor part of the surplus produced by the mass of
peasants and artisans above their subsistence needs was scooped
up by the state, local officials and the gentry. It took the form of
direct taxes, in money or in kind, indirect taxes and various other
levies and payments. Part o f this revenue, to be sure, found its way
into productive uses, such as the m aintenance of waterways, roads
and flood control, but probably most o f it went to the upkeep o f a
vast bureaucracy and army, or into the coffers of gentry families.
Largely this was a one-way traffic: funds and goods flowed from the
provinces to Peking, or from the rural areas to the provincial towns.
118
T he flow in the opposite direction was on a reduced scale; the towns
were not industrial centres but the administrative headquarters of
the ruling class.
Considered as a pre-industrial economy, on a comparative basis,
China was at a high level of developm ent by the eighteenth and
nineteenth centuries; but it had achieved that level long before and
showed no signs o f a qualitative shift to a m ore complex structure
or to a higher rate o f growth. T here was no independent middle
class, or bourgeoisie, of the European type, owning individual
private property, investing in trade and industry or practising the
professions. T he Chinese m erchants were m ore like those to be
found in medieval Europe or any other similar society; they played
only a subordinate role, despite their riches, and their interests
tied them to the established order. As for the scholar-officials,
they, likewise, were identified absolutely with the existing social
order and not likely to be the seed-bed for a critical or reform ing
tendency on the scale, for example, of the European Enlightenm ent
of the eighteenth century. T here was no reason for them to reject
the received Confucian doctrines which sanctified their role.
T he vastness o f China, as well as the relative ease of transport over
m uch o f the territory by means of the river system, gave its policies
an inward-looking character. T here was little need for, or interest
in, foreign contacts and trade, and still many inner frontiers to be
opened up. Foreigners were treated disdainfully; trade with them
was not prohibited (as in Tokugawa Japan) but was only carried on
with them because they had come to China. Chinese m erchants of
the Ching period seldom ventured abroad in search of trade.
All in all, there were no indigenous forces or pressures prior
to the nineteenth century that were in any way strong enough to
prom ote fundam ental change in the Chinese economy. T hough
change was not absent, it was constricted by the whole nature of
traditional Chinese society, as well as by the lack of any incentive
to change the existing relations between the factors of production
or any class which could take the initiative in such a change. T hat
is why, although pre-industrial China did possess some of the
‘prerequisites’ for economic growth (looking at it in retrospect) —
markets, money, merchants, banking —they could not be turned to
account. No inventors or innovating entrepreneurs appeared able
to prom ote an industrial revolution. China was fated to receive the
new m odern technology as an im port from the hands of foreigners.
It did so, at first, in a largely passive role. ,
Europeans began to draw China into the world m arket on
119
a significant scale in the eighteenth century, ju st as the industrial
revolution was beginning in Europe. As the British East India
Company extended its territorial dom ain in India, it came to
dom inate the trade with China, being especially interested in finding
there a m arket for Indian opium to pay for the Chinese tea and silk
it was shipping to Europe. W hen the Chinese governm ent decided
to resist a trade which was debilitating its subjects and depleting its
revenues, the British went to war in 1840. In any case, by then the
M anchu regim e was in a state o f crisis and in no position to rally the
people for a national war against the foreigner. A fter two years of
desultory warfare it m ade peace at Nanking in 1842 and from then
on a new era in Chinese history began. Britain imposed an indem nity
on China and acquired H ongkong as a base for trade. A num ber o f
other Chinese ports were to be opened up to foreign trade. This was
the beginning of the treaty ports system u nder which the United
States, as well as the m ajor E uropean powers, imposed treaties on
a weakening China, giving their subjects extra-territorial rights in
these ports. In 1857 Anglo-French forces launched the Second
Opium W ar at a time when the Manchus were facing the most serious
challenge to their rule from the Taipings, a vast peasant revolt which
might have led to the renovation of China, only defeated in 1864.
As a result of their victory over China, by the T reaty of Tientsin
Britain and France were able to impose even m ore stringent terms.
Besides legalizing the opium trade, the treaty opened up ten m ore
ports to W estern trade. Merchants, missionaries and others were
perm itted to travel into the interior o f China and W estern control
of the customs system (first imposed in 1854) was extended. T he
process of bringing China’s economy un d er foreign control had
begun and was to continue, but the rivalry between the countries
concerned, together with the size and remoteness o f China, saved it
from becoming a colony or being partitioned between the powers.
Instead, foreigners established themselves for business purposes in
the treaty ports and staked out spheres of influence in the interior,
as the need arose.
FOREIGN INFLUENCE
Thus, unlike Japan, China was unable to offer any real resistance
to the foreign intruders and was forced to accept an inferior
position. T heir hold on the treaty ports gave the foreigners access
120
to the interior, control over external trade and bargaining counters
for winning m ore concessions. To develop their trade they had to
depend upon Chinese nationals who knew the language and the
country to act as m iddlem en, assembling products required for
export and finding markets for foreign imports. These were the
compradore capitalists whose interests and fortunes were now bound
up with foreign trade and cooperation with foreign businessmen,
rather than with the independent developm ent of the national
economy.
T he opening up o f China by force, placing the foreigners in
a privileged and dom inating position, had contradictory effects
on its development. Foreign traders were interested in immediate
profits, but they also had to finance an infrastructure o f transport
and other facilities to extend their business. In fact they were the
vehicle through which m odern technology and business practices
reached China and took root. Inevitably at first the country was
seen principally as a source o f prim ary products such as tea, silk
and bristles and also as a m arket for cheap, machine-made, foreign
goods. As a result, some branches of agriculture began to grow,
while old-style artisan industry suffered from foreign competition.
Overall, China now became increasingly exposed to world m arket
forces; tea exports were hit by the new plantations in India, silk by
Japanese competition. Price trends and changes in world supply and
dem and conditions now began to influence China for good or ill.
An adaptation had to be m ade to foreign imports by shifting to new
lines. Cotton-spinning, a hand industry, declined, but hand weaving
for a time was able to expand using cheap im ported m achine-made
yarn.
From the 1860s Chinese officials m ade some attem pts to
introduce m odern industry and to develop mining and shipping on
W estern lines. W ithout a thorough renovation of governm ent and a
new national policy of the kind which followed the Meiji Restoration
in Japan, such measures proved to be abortive. Officials saw in these
enterprises m ore a source o f squeeze for themselves than a means
of guaranteeing national survival; it was an attitude which was to
be persistent not only until the fall o f the Manchus in 1911, but
throughout the nationalist regimes which followed down to 1949.
C orruption in one form or another appeared to be endemic.
Meanwhile, although during the second half of the nineteenth
century some Chinese entrepreneurs came forw ard to found new
businesses with im ported technology and on m odern lines, ithey did
not do so on a sufficient scale to initiate a process of industrialization.
121
In 1895, following defeat in the war with Japan, the establishment
of forei^n-owned industries was legalized and another indemnity
had to be paid. In fact, foreign capital had already begun to find
its way into industrial production. Now even m ore advantage could
be taken of one factor China possessed in abundance: labour. It
was on the basis o f low wages that foreign-owned industries were
set up in the treaty ports, especially Shanghai. These industries
were not so m uch directed at the Chinese m arket, although
there was a good deal of import-substitution, as at production
for export. It was a type o f industrialization with which Asian
countries were to become familiar. Foreign capital also flowed
into railway construction, shipping and banking. T he object of
this investment was not to make possible the balanced growth of
the Chinese economy but to open up profitable opportunities for
foreign capital, chiefly in trade. This was done by opening up the
interior and linking it to the ports. T hus the Chinese economy
developed in a typically colonial, and one-sided, relationship to
the world market. Foreign investment, followed by some native
capital, went mainly to peripheral areas —M anchuria and the treaty
ports —and had only limited linkage effects on the interior. Over
m uch of the country, the agrarian economy continued to stagnate
or even to decline, while population growth was taking place at a
rapid rate. Part of the surplus population in adjacent rural areas
moved into the treaty ports and other industrial areas to form a
cheap labour force for industries often owned by foreign capital.
Enclaves of capitalist industrialization were created without close
organic relationship with the economy as a whole. On the other
hand, they had a ‘dem onstration effect’ for other parts o f China
and strengthened m odernizing forces. Some Chinese were able
to acquire new skills, though m anagem ent posts were, at first,
generally held by foreigners. They enabled the compradore class to
grow and flourish, and encouraged some Chinese entrepreneurs
to emulate the foreigner, even to the extent o f setting up factories
and im porting m achinery from the West. Native capital could also
be mobilized through the banking systems. In the towns an industrial
proletariat came into existence, while radical new tendencies began
to em erge am ong the intelligentsia as it was exposed to foreign
influences.
In the final analysis the role of the treaty ports, and thus of
foreign capital, remains problematic. Did foreign capital merely
exploit China and hold back development? O r was it the exogenous
force without which the economy would have continued to stagnate?
122
As has been seen, the M anchu regime was unable to undertake the
task of national regeneration perform ed by the elite of Meiji Japan.
T he defeat of the Taiping rebellion rem oved another interesting
alternative: the overthrow of the old system by a movement from
below, with possible developm ent along bourgeois-democratic lines.
Subsequently, the nationalist movement grew in response to foreign
intervention and control, but came on the scene too late to prevent it.
T he slow developm ent of China com pared with the W estern world
fated it to a long period of dependence; at the same time the W estern
intrusion provided new models and new means of achieving them
before the old models had lost their potency. T here was nothing to
stop the im port of the most m odern machines or the most advanced
ideologies into a China still hidebound by tradition, itself embodied
in the officials and gentry of the old regime. By the early twentieth
century the challenge of m odernization was taken up, first by the
nationalists, inspired by Sun Yat Sen, and, when their efforts finally
collapsed, by the Chinese Communist Party after 1949. T he latter
inherited the unfinished tasks of its predecessors. U nder whatever
auspices industrialization took place in a backward, overwhelmingly
agrarian country like China, it was bound to necessitate increased
output from the land and a flow of labour from the agrarian sector
into industry. On the other hand, it was unlikely that the impetus
would come from agriculture, say by its transform ation on capitalist
lines. Landowners were not turning over to estate-farming for the
m arket, nor was there a class of large capitalist farm ers. In the late
nineteenth and early twentieth century, Chinese agriculture seems
to have been in an interm ediate position: it was neither so resistant to
change as to consititute an absolute barrier to growth, nor dynamic
enough to initiate it. W hoever owned the land, cultivation was
overwhelmingly in the hands of the peasantry, mainly using family
labour. T here was, on the whole, no problem of large estates nor of
serfdom. Land was held as private property and could be bought and
sold; holdings were usually divided up on inheritance. Land was an
investment for both the gentry and the urban rich, for the income
it offered and the status it conferred. T he income was draw n from
the produce o f the peasant received in cash or kind, not by taking
hold of the land as a means of production and revolutionizing
techniques through the investment of furth er capital. T here was,
then, a problem of landlordism of a parasitic character, of exiguous
holdings and o f pressure on the land where population density was
high. Landowning was therefore unequal; m uch land was held by
absentees. Some peasants were able to consolidate their holdings by
123
purchase; others, who owned little or no land, m ight rent it from
the gentry or from other owners who had no desire to cultivate it
themselves. Peasants who fell into debt, as a result o f crop failures
or other disasters, m ight have to relinquish their land; m ore likely
they stayed on as tenants, while paying off their debts to the
landlord-usurer. Expensive family ceremonies m ight also cause the
peasants to fall into debt or tenancy. Gentry and others with spare
money m ight lend it on m ortgage to distressed peasants, exacting
their pound of flesh from the gruelling toil o f the cultivators.
In a country as vast as China, generalizations about the agrarian
regime, or anything else, are subject to regional variations. T here
were differences, for example, between the wheat- and sorghum-
growing regions of the N orth and the predom inantly rice lands
of the South. Some areas had long been opened up to trade by
proximity to towns and then to the treaty ports which m eant a
m arket for food and dem and for labour. Others, in the rem ote
interior, suffered from poor soil or inclement climatic conditions,
generated little in the way of surplus and rem ained desperately poor.
W here markets did exist, there is evidence that the peasants took
advantage o f the opportunities, producing m ore for sale, turning
to new crops and adopting improved methods. T he peasant was
susceptible to m onetary incentives where they were offered. In
many places there was a struggle for survival, m ade all the m ore
acute by population growth, as the twentieth century progressed.
T here was also chronic political instability: the breakdown of the
M anchu regime, the Revolution o f 1911, the failure to build a strong
centralized regime, together with the endemic warlordism and civil
war in the period from the 1920s onwards, all of which could not
have failed to have a disastrous impact upon many parts of rural
China. Local rulers imposed new and often unw arranted exactions
upon the peasants; military com m anders seized their stocks, their
animals and their poultry. Young m en were conscripted into the
w arring armies. Public works vitally necessary for water control
tended to be neglected, heightening the risk o f flood or drought.
T he Nationalist governm ent, whatever its intentions, was unable
to arrest this process of decay or to carry through badly-needed
agrarian reforms. This arose largely from the fact that governm ent
depended for support on the local gentry and other interests who
were opposed to changes likely to diminish their social power. All
these factors were noted by the Communists and taken up in their
propaganda directed towards the peasantry and all who suffered
from m isgovernm ent and corruption.
124
Until the social disintegration which accompanied civil war in
the 1930s there were signs that the land system was accomodating
itself to growing commercialization and the growth of industrial
centres. T he fact that many, if not most, peasant families, held
some land, as owners or tenants, may have facilitated this. On the
other hand, there were wide differences within the peasantry and
where production for the m arket was carried on, these differences
tended to widen. Some peasants turned to commercial agriculture
and accumulated capital, if only on a small scale, in a way reminiscent
of the Russian kulak. Continued population growth m eant m ore
m ouths to feed and m ore sub-division of holdings, many o f which
were already exiguous. T he ruling class was m ore interested in
securing part o f the surplus than in finding ways to increase the total
output from the land, and there was little incentive for them to do
otherwise. In any case, the peasantry would probably have resisted a
movem ent from above to recast the land system in the interests of the
larger owners. T heir ability to improve productivity was limited by
lack of knowledge, lack o f capital or addiction to traditional ways - all
familiar problems in underdeveloped countries. Moreover, within
these constraints, agricultural production, using labour-intensive
m ethods, was highly productive per acre, com paring favourably, for
example, with Tokugawa Japan. T he typical village rem ained highly
self-sufficient, with local crafts or household production supplying
most needs. T he absence of any transform ation of the agrarian
sector closed one avenue for faster economic growth. However,
with population growing, in the long-term agriculture was running
into an impasse.
T he stimulus to growth from the treaty ports was not strong
enough to prom ote rural change outside a restricted hinterland.
M anchuria was a special case: the institutional background was
different from that of China proper and labour was m ore scarce
relative to land. T he coming of the railway opened the way
for the commercialization of agriculture and laid a basis for
industrialization; the Japanese took full advantage o f this when
they seized the territory in 1931. Elsewhere, in the 1930s, the
most notable feature was the failure of the authorities to form ulate
or impose a program m e of m odernization in response to foreign
penetration and to win popular support for it. T he measures taken
were mainly half-hearted and localized in scale.
One explanation of China’s disappointing perform ance is that
it had been draw n into the world m arket in a subordinate^ position
as a result of the Opium Wars and was not therefore able to strike
125
out on an independent path. T he Manchu regime was thus forced
to allow j foreign capitalists to acquire a dom inant position in the
treaty ports from which they exercised a stranglehold on the entire
economy. T he failure to develop industrially in the middle decades
of the nineteenth century m eant that when the new imperialism of
the great powers turned to Asia in the last quarter of the century,
China was once again a helpless victim. By contrast, Jap an escaped
the earlier imperialism of free trade thanks to the policy o f seclusion
before 1858; established a strongly nationalist policy o f m odern
ization after the Meiji Restoration of 1868; and in the last quarter
of the century joined the imperialist pursuers at China’s expense.
In Ja p an ’s case, the unequal treaties imposed by the W estern
countries were of shorter duration and proved less onerous. T he
success of the Restoration policy enabled Jap an to become accepted
as an equal trading partner while China was incorporated into the
world m arket as an inferior. This role m ade it still m ore difficult
for industrialization to take place, since the initiative had passed to
foreign capital in the treaty ports. Outside these peripheral areas
there was no incentive for private capital, Chinese or foreign, to
invest in m anufacturing industry. T he poverty o f the peasantry
limited the size of the home m arket, as did the cost of transport in
a country of vast distances. T he richer consumers wanted high-class
goods, either m ade by small-scale craft industry or im ported. In the
absence of any other propelling force, the initiative lay potentially
with the state. M anchu China was not a m odern centralized state
and lacked the will as well as the organization either to resist foreign
encroachments altogether, as did the Japanese in the Tokugawa
period, or to tu rn the technologies o f the West to advantage with
a national program m e such as that of Meiji Japan.
Elements of m odern capitalist economy were certainly intro
duced into China, but mainly under foreign control. For a
long time Chinese entrepreneurs were content to exploit trading
opportunities in a subordinate position, either to foreign capital or
to the state. Thus a form of bureaucratic capitalism did take shape
u nder the Manchu regime and was continued during the years of
Kuom intang rule in the form known as ‘official supervision and
m erchant m anagem ent’. Factories and some mines were established
in this way, but they were mostly local enterprises or produced arms
and stores for official use; they were adapted to the traditional
framework, m uch like the state industries o f seventeenth- and
eighteenth-century Europe, and could not act as a dynamic,
transform ing force. In particular, this form of bureaucratic
126
capitalism could not penetrate and underm ine traditional relations
in the rural sector and lead the way towards a m ore commercial or
capitalist type o f agriculture. Meanwhile, outside a few areas, the
old, labour-intensive, small-scale forms o f industry continued to
survive, or even to grow, with little incentive for the introduction
o f technical change.
T here is, it must be said, a danger in an analysis like the
foregoing of unconsciously imposing a European yardstick on a
non-W estern country like China. Why should China be expected
to follow the W estern model? Is there not an implication that every
step along the W estern road was in China’s interests? A case could
be m ade out that the European impact was destructive, leading as
it did to a century or m ore of turm oil, and being motivated by such
discreditable causes as the opium trade. T here is no reason, it could
be argued, why China should have followd foreign models, either
voluntarily or u n d er compulsion. Perhaps the old order could have
reform ed itself and carried through a m odernization program m e of
its own, given time. Perhaps China could have worked out a response
to the W estern challenge along the same lines as Meiji Japan. T here
is no way in which such questions can be settled. W hatever may be
said in defence o f the foreign intrusion, and in particular about the
influence of foreign capital, technology, business m anagem ent and
enterprise in preparing the way for the industrialization of China, it
should be pointed out that industrialization had not seriously begun
before 1949. Certainly, by then, w hether or not the foreign intrusion
had done m ore harm than good, it had practically destroyed the old
China. W hat was to replace it?
W hatever the rights and wrongs of history, when Chinese
nationalism became a political force it looked to foreign models
and ideologies in o rder to escape the stranglehold of foreign
imperialism. This was the paradox of most o f the non-European
dependent countries when they sought to assert the right of
nationhood in the twentieth century. Besides, once China had been
opened up by Europeans and brought into contact with the world
m arket there could be no going back; an irreversible process had
begun. To become a unified national state China had to follow the
European model and in particular it had to industrialize; on the
other hand, it could not slavishly follow any foreign model if it
were to do so successfully. Answers had to be found to specifically
Chinese problems. This lesson was to be impressed on the Chinese
Communist Party when it came to power in 1949. \
T h at industrialization was a central part of the policy of turning
127
China into a m odern and socialist country and of assuring its
nationallindependence was axiomatic. It was possible to reflect upon
the experience o f the European countries, of the Japanese enemy
and of the Soviet Union, the latter being taken by many Chinese
Communists as their m entor. A fter all, the Soviet Union presented
the only example o f the industrialization of a backward agrarian
country on a planned basis. Although China began at a lower level
of industrial developm ent, the Soviet model appeared to be directly
relevant. M oreover, although Stalin had not been enthusiastic about
the taking o f power by Mao Tse-tung and his party, there was no
doubt that the latter held the Soviet economic policies and methods
in high regard. In the absence o f any alternative model, the early
steps on the road to planned industrialization, taken after 1949,
closely followed those which had apparently proved their worth in the
Soviet Union during the 1930s. In any case, after years of war and
civil war a period o f reconstruction was necessary. In the absence
of aid from any other quarter, China had to depend upon plant and
equipm ent provided on loan by the Soviet Union, and the assistance
o f Soviet technical specialists and advisors. It seemed, therefore,
that Chinese industrialization would be a carbon copy of that u n d er
taken two decades earlier in the first two Soviet Five-Year Plans.
Indeed, the influence of the Soviet model on the planning
structure and economic policy, overwhelming at first, rem ained
significant through all the vicissitudes in Sino-Soviet relations and
the break with the Soviet Union and is still discernible today.
However, it was soon discovered that the Soviet model was not
entirely suitable for China’s stage of developm ent and that it
tended to produce side-effects, notably the growth of a bureaucratic
hierarchy, which Mao Tse-tung, and some o f his close followers,
found unwelcome and dangerous for the health o f the revolutionary
regime. O ther party leaders, no less powerful, though they m ight
share Mao’s suspicions o f Soviet motives, w hether on theoretical
grounds or for practical reasons, opposed any wide divergence from
Soviet-style planning and m anagement. T he stage was soon to be set
for the surfacing o f those sharp differences within the leadership
and the various changes in policy which took place during Mao’s
lifetime and after his death.
THE NEW REGIME

T he initial tasks confronting the Chinese Communists on taking
power were those o f reconstruction and stabilization after years of
128
war, civil war, economic dislocation and runaway inflation. Having
acquired considerable mass support and a great fund o f goodwill
by their lead in the struggle against Japan, and the reform s carried
out in the Liberated Areas, they were able to restore production and
bring inflation u nder control within a comparatively short time. T he
party cadres introduced new standards o f honesty and efficiency
into everyday administration. Many Chinese from the urban middle
classes and the intelligentsia threw in their lot with the new regime.
T he mass of the people were peasants and it could be claimed that
peasant support had been crucial for the success of the Communist
Party and the arm ed forces which it controlled. A grarian reform
was a top priority and was extended in 1950 to all areas o f China on
the lines already adopted in the Liberated Areas. Reform consisted
essentially of a redistribution of land at the expense o f the gentry
landowners and richer peasants, thereby creating, over the next
two years, a m ore uniform pattern o f working peasant proprietors
in the country as a whole. In the course o f carrying out the reform ,
a vigorous campaign was launched against the big landowners and
village exploiters; large num bers were arrested, tried and punished,
frequently with the death penalty, by revolutionary tribunals which
had the character o f mass meetings. This agrarian reform may have
seemed in contradiction with the ultimate aims o f the new regime
in so far as its first result was to consolidate small-scale peasant
landowning.
However, during the struggle for power against the Kuom intang
a conciliatory policy had been adopted towards the ‘m iddle’ peasant,
the one most likely to have surplus crops. In the same way, Mao
had m ade a distinction between the ‘national’ bourgeoisie and the
compradore bourgeoisie who were regarded as agents of imperialism.
While this may have been a shrewd tactical move at one particular
juncture, it left some serious problems. In agriculture, for instance,
production based upon small holdings was likely to become a
breeding ground for petty capitalism, as in rural Russia after the
Revolution of 1917. It was also likely to m ean that peasants would
consume m ore of their own produce and be less willing to supply
the needs o f the towns for foodstuffs and raw materials. Yet rapid
industrial developm ent depended upon agricultural surpluses. In
part the problem was overcome by the levying o f a tax at the rate
o f 17-19 per cent on the peasant’s harvest. Even so, although an
increase in production was claimed, it fell short of needs; the prob
lem of how to extract a larger surplus from agriculture rejfnained.
In the light of Soviet experience in the 1920s, the obvious solution
129
to the procurem ent problem was collectivization. By pooling the
land an<| farm equipm ent, and by mobilizing the vast labour reserve
of the countryside, it would be possible to raise productivity and
production and thus provide resources for accumulation as well as
food for the population. In a backward and still mainly agrarian
country, which was committed to a socialist policy, there seemed no
other way in which industrial investment could be stepped up from
its own resources. However, Soviet experience also showed that the
peasants m ight resist such a move and might respond to any attem pt
at collectivization in the same way as their Soviet counterparts had
done in the 1930s, by slaughtering farm stock and destroying
equipm ent. Those in the leadership of the Party who were familiar
with Soviet history perhaps knew that Soviet collectivization had
not been an unqualified success, that it had been carried out at
the expense of the deportation and death of millions of peasants
dubbed as kulaks and had led to a disastrous fall in farm output.
T rue, many of the Chinese kulaks had already been disposed of in
the course of the agrarian reform , but in places a distinct stratum
of better-off peasants still rem ained. Consequently, a section of
the leadership held back from collectivization, not wishing to
antagonize the peasantry —from which the mass of the Liberation
Army was draw n - and arguing that it should at least be postponed
until the means were available to raise the technical level of the
collective farms above that o f small-scale peasant cultivation. These
differences were not made public at the time but were only revealed
later during the campaign against the so-called ‘capitalist-roaders’
Meanwhile the new regime had taken over the state industries
already in existence and had nationalized foreign-owned businesses.
O ther private enterprises, those of the ‘national’ capitalists,
rem ained in existence, subject to state supervision and increasing
taxation, during the early 1950s, the final nationalization drive
taking place in 1955—56, but even then still leaving some private
capital in joint ventures. In some factories, too, the form er owners
and m anagers were kept on for the time being. T he Korean W ar
m ade it necessary to tu rn industrial capacity and skilled m anpower
to war production once again, and also created a need for food
supplies for the army in Korea. However, these were familiar
problems and were less of a drain than m ight have been supposed.
Together with the Stalinist style of planning, the Chinese
Communists also adopted the policy of ‘socialism in one country’
which assumed the building up o f a near enough self-sufficient
industrial base. This required large-scale investment in industries
130
producing means of production (D epartm ent I in the Marxist term i
nology), to provide basic materials for industrialization such as steel,
coal and heavy chemicals as well as machinery for its own plant and to
equip consum er goods industries (Departm ent II). Industry would
likewise have to supply the tractors, farm machines and fertilizers
necessary to raise the technical level of the agrarian sector and thus
enable it to feed and supply with raw materials (such as cotton) the
whole expanding industrial complex. At first sight this seems to
present a vicious circle to any backward country without foreign
aid. How can it make the heavy equipm ent needed to build up the
producer goods industries unless it has such industries in the first
place? How can agriculture produce a surplus unless it is supplied
with the m anufactured inputs and unless the peasants are supplied
with consum er goods? W here are these goods to come from unless
D epartm ent II expands output? T he Soviet example suggested that
consum er needs would be left unsatisfied during a m ore or less
prolonged period in which priority was accorded to D epartm ent
I.
Such questions would have to be worked out by the decision
makers: the central leadership of the Party. However, post-1949
China was hardly in a position to em bark upon economic planning
forthwith. It needed statistical and other inform ation, trained
personnel and a clear conception of where to begin. Planning began
at a much lower level of theory, data and expertise than it did in
the Soviet Union in the 1920s where Gosplan was able to mobilize a
wealth of inform ation and talent. Like the Soviet Union, Communist
China could count mainly upon the hostility of the capitalist world,
and even norm al trade was unlikely to be resum ed. On the other
hand, the Soviet Union was now the second largest industrial power
and China counted on its aid as well as on that of the East European
countries. However, those countries had their own problems arising
from the war and its afterm ath; and China could not expect that
such aid would be lavish.
It was clear that at this stage, objective conditions pushed China
into dependence upon the Soviet Union. T he adoption of the Soviet
planning model based upon the priority of heavy industry, m ade it
inevitable that some plant and equipm ent would have to be obtained
from outside and the only possible source was the Soviet Union. This
is not to say that in the circumstances there was not a sound rationale
for this policy. Soviet plant and equipm ent provided the way out
of the vicious circle. While a period would be required,in which
consum er goods production could not be greatly increased and in
131
which, for lack o f m achinery and fertilizers, agricultural production
would npt be likely to increase rapidly, the initial injection o f Soviet
equipm ent would, in time, provide the means for these and other
sectors to grow. Growth had to begin somewhere and Soviet aid
in establishing mainly heavy industry, both in material form and
the know-how and example of the experts and technicians who
helped to build and run-in new plant, could give it that start.
T he danger was that peasants and consumers generally would
react unfavourably to a m ore or less prolonged postponem ent of
any substantial im provem ent in their living standards. Hence the
need for propaganda campaigns to rally support and to provide
ideological satisfactions when material ones were in short supply.
PLANNING
T he First Five-Year Plan covered the period 1953—57, although it

was not finalized until the early part o f 1955. Until then there was a
period o f transition in which the planning apparatus was being put
into place and objectives were being worked out in negotiation with
the Soviet Union. Meanwhile, the economy functioned on a series of
short-term plans. T he Five-Year Plan set ambitious targets, notably
the doubling of industrial production with a high rate of investment
and emphasis on the priority growth of heavy industry. Very much
the centrepiece o f the Plan was the building of new giant plants
equipped with Soviet machinery on the model of the Soviet Plans
of the 1930s. Having adopted this aim, it was virtually inescapable
that the current Soviet style o f m anagem ent would also be adopted.
This gave wide powers to the plant director over production and
discipline while obliging each plant to fulfil targets laid down by
the state. T he practice of one-m an m anagem ent and centralized
control prevailed throughout the planning system and produced
a rigid, bureaucratic hierarchy. Additional payments and bonuses
were widely used as incentives for the fulfilment of targets and the
efficient carrying out of work.
T he one-m an m anagem ent system and other m ethods established
by the Plan generated some opposition within industry, largely
because they conflicted with previous practice or were simply not
workable in the many small factories which m ade up the old private
sector. Amalgamations were necessary and such firms were taken
over by the state. T here were other reasons, too, for opposition, but
132
the main ideological objections only became known later as Chinese
and Soviet views conflicted on a wide range o f issues. In any case,
Chinese Party officials were not agreed am ong themselves.
W hen Sino-Soviet differences began to surface from about 1956,
economic policy became an issue; later, differences within the
Chinese leadership itself also became plain. One-m an m anagem ent
came un d er attack for creating powerful, privileged bureaucrats,
and the organizational m ethods as a whole for laying too much
emphasis on material incentives and stultifying initiative. T he
debate was symptomatic, in part, of tensions within the Chinese
leadership. Also, no doubt, there had been opposition on the part
of workers and lower-echelon m anagers to the new Soviet-style
methods. Underlying the discussion was the increasingly evident
fact that the Soviet model could not simply be transferred lock,
stock and barrel to a country in which conditions were very
different. For example, China had an enorm ous labour reserve and
a still backward agrarian sector. Large-scale industry, concentrated
in a few areas, left untouched the problems o f m odernization in
the country as a whole, while absorbing enorm ous resources. T he
whole planning enterprise was rem ote from the concerns of the
mass of the people and brought no appreciable im provem ent in
living standards. It was perhaps inevitable that the Soviet model
would have to be tried before it could be found wanting. Once the
glam our of it had worn off, and it was discovered that it provided
no ready answers, the way was open to seek other solutions. Even so,
there was no question o f the complete abandonm ent o f the Soviet
model, many aspects of which had, in fact, proved their worth or
could not easily be replaced. However, with the rapid worsening
o f the relations between China and the Soviet Union and the final
break between the two countries, all Soviet aid was withdrawn in
1960 and the Soviet technicians went home. China had to go it
alone but a high degree of self-sufficiency was a central feature of
Stalin’s policies, and he was to rem ain a highly esteemed figure in
China.
Somewhat belatedly, m ore or less empirically, once Soviet support
had been cut off, alternative strategies for industrialization had to be
devised. High on the agenda for economic policy was the agrarian
question which had by no means been solved by the reform of
1950. As long as the land rem ained in the hands of small peasant
proprietors there was a limit to the increase in output which could
be obtained, and thus in the surplus available to make possible m ore
investment elsewhere. It was basically the same problem raised and
133
fought out in the Soviet Union in the 1920s. Either the rate of
industrialization had to be governed by the quantity of products the
peasants were willing to supply voluntarily through the m arket in
exchange for consum er goods, or a larger proportion o f the product
of agriculture had to be siphoned off directly, through compulsory
levies or by collectivizing the peasant lands. In addition, there was
the question of tempo: how fast to go. T here was also the question
of how to make best use of the almost inexhaustible labour reserve
in the countryside.
Evidently, these issues of economic policy caused wide rifts in the
leadership, though for a long time the differences were fought out
behind closed doors and even now it is difficult to know their exact
nature. Ever since Mao’s death there has been no real opportunity
to know what the actual policies of the defeated were. As it was,
the advocates of rapid collectivization, led by Mao Tse-tung in his
first m ajor intervention in economic policy, won the day. They were
not prepared to wait until the collectives could be provided with
equipm ent, farm m achinery and other aids. Instead, the peasants’
labour was to be mobilized on cooperative lines and an effort was
to be m ade to harness their loyalty to newly-formed collective farms
rather than to the family or the village. T he collectivization drive,
like the later form ation of communes, was consciously directed
at reform ing social structures and individual psychology and was
never simply regarded as a means of increasing production. It was
accompanied, therefore, by an intensive campaign to convince the
peasants of the advantages assumed to follow from the new system
of agriculture and to educate them in the new form of social living.
Opposition was encountered not only in the villages, but also from
a section of the Party leadership; nevertheless collectivization was
pursued step-by-step, from lower to higher forms of cooperation
and was completed by 1957. At this stage collective farm adm in
istration closely followed the Soviet model but, as it turned out, it
was destined to be superseded after only a few years by a still m ore
grandiose project.
THE GREAT LEAP FORWARD
As the period of the First Five-Year Plan came to an end, im portant

decisions had to be m ade about the future shape of economic devel
opm ent. T here were bitter disagreem ents within the leadership, not
134
resolved until m id-1957 with the trium ph o f Mao Tse-tung’s line
and the launching o f what was known as the Great Leap Forward.
Despite the relative success of the Plan it was evident that a series
of such Plans would be required to overcome China’s economic lag.
Besides, a narrow emphasis on economic achievement could result
in a tacit agreem ent to leave old institutions in place and to accept
greater inequality and the consolidation of a bureaucratic stratum
and privileged groups through the operation of material incentives.
T he Maoist view seems to have been that revolutionary goals were
being forgotten in the search for ecomonic efficiency.
T he Great Leap Forward was intended to make a sharp break
with the past as well as to project an alternative economic model m ore
closely attuned to China’s needs as assessed by Mao himself. It called
for the mobilization of the entire population, starting with the great
majority living in the rural areas. T he collective farms, which had
only been in operation for a few years, were to be m erged into much
larger units to be known as the Peoples’ Communes. In a five-month
period in 1958, the 740,000 cooperatives (or collective farms) were
regrouped into some 24,000 communes, each comprising about
5,000 households. T he pooling of resources was intended to make
possible the provision o f communal kitchens, dining rooms, schools
and other facilities. T he economy of labour in cultivating the land
would make it possible to recruit huge armies of labour for flood
control, irrigation and similar projects aimed to increase the
productivity o f the land and combat flooding and droughts, those
agelong scourges of the peasantry. At the same time the communes
were encouraged to take over or set up a multiplicity of industrial
projects on a small-scale, including the famous backyard furnaces
for the m aking of iron and steel. From the economic point of view,
the aim was to transform China’s main resources —her teeming
millions - into a productive asset, and to realize the communist
dream of combining different forms of labour and harnessing it
for the common good.
T he unprecedented scale and novelty of the effort represented
by the Great Leap Forward attracted worldwide attention, evoking
both enthusiasm and revulsion. At first, aided by favourable
harvests, the new policy seemed to be a success, but in 1959 and
1960, climatic adversity and natural disasters afflicted China and
resulted in harvest failures and food shortages. Even apart from
these m isfortunes the communes were running into difficulties.
Such a massive change in agricultural organization, coming so
shortly after the form ation of the collective farms, could hardly fail
135
to cause administrative and organizational problems which must
share th|e blame for the fall in agricultural output. T h e herculean
efforts dem anded of peasants and workers, especially the leading
cadres, could not be sustained. Machinery and equipm ent were
worked to the limit and when breakdowns occurred there were
no replacements. Although the encouragem ent of small-scale rural
industry to supply everyday needs was sound in principle, some
of the projects initiated by the communes, such as the backyard
furnaces, were technically unsound and led to waste. Moreover,
the acceleration of production by the m ethods o f the forced
march, without central direction or national plan, was bound to
ru n into trouble. Incom petent direction, inadequate coordination,
lack of raw materials or spare parts, or sheer physical exhaustion
all contributed to a growing crisis in production. While the Great
Leap Forward had as its centre one im portant, positive gain, the
mobilization o f China’s immense labour reserves for large-scale
projects, it was not the way to prom ote sustained economic growth
or industrialization. In fact, it created chaos in some sectors and
drove the economy near to breakdown.
As the Great Leap Forward ran out o f steam so the methods
behind it tended to become discredited, strengthening those
elements in the Comm unist Party leadership which were opposed
to Mao Tse-tung, and leading, tem porarily, to the adoption of a
m ore cautious strategy. By the end of 1960, Soviet aid had come
to an end and this contributed to a reduction of emphasis upon
heavy industry. Now there was a growing tendency to decentralize
light industry and an effort was m ade to step up the production
of fertilizers. More attention was paid to the quality of production
rather than volume. Reorganization of the communes took place,
curtailing some of their m ore ambitious activities while restoring
private plots, and thus, as it were, rehabilitating the family as a
productive unit alongside the commune. In the factories, the form er
managerial structure, which had been superseded during the Great
Leap Forward, was regaining favour. Once again emphasis was
placed upon material incentives. T he centralized planning system
was, to a large extent, restored. T he strategy now pursued seemed
deliberately to negate the aims o f the Great Leap Forward; Mao was
in eclipse. It seemed that China had settled down to a long period
o f steady but not spectacular industrialization on m ore orthodox
lines. Not for long, however; the calm o f these years presaged a
yet m ore spectacular tu rn in policy: the Great Proletarian Cultural
Revolution as it was styled.
136
THE CULTURAL REVOLUTION
Once again Mao took command; the new strategy, like that o f
the Great Leap Forward, was not exclusively economic in nature.
Indeed, it set out to put politics in comm and, to sweep away most of
the landm arks o f traditional China, to revolutionize the educational
system and generally to eradicate from society all the vestiges of the
past which conflicted with the form ation of a new man. In practice,
also, it was aimed very directly at those in the Party leadership who
had prom pted the policies of the First Five-Year Plan, who were
half-hearted about the G reat Leap Forward, and whose influence
had largely shaped the retrenchm ent called for in the early 1960s.
T he accusation now m ade by Mao and his supporters was that these
policies opened the road to the restoration of capitalism in China,
the road already followed by the Soviet Union since the death of
Stalin in 1953. A trem endous nationwide propaganda campaign
was launched to make it appear that Mao had acted ju st in time
to prevent the ‘capitalist-roaders’ headed by form er President Liu
Shaochi, from taking power. T he main weapon o f the defeated
faction, who were not allowed to express their policy publicly, was
said to be the appeal to material appetites, an im provem ent in
living standards or what was described as ‘economism’. In the place
o f material incentives, Mao offered service in the public interest,
self-sacrificing effort for the revolution, mass participation and
the correct ‘proletarian line’. It was clear from the turm oil which
accompanied the Cultural Revolution that Mao’s policy was by no
means universally accepted.
T he implication of the new line for economic policy was not as
clear as it had been during the Great Leap Forward as the emphasis,
particularly in the early stages, seemed to be upon tearing down all
rem inders of the old social ord er rather than instituting new prac
tices. In any case, rapid economic developm ent was not the priority
aim. It was soon evident, however, that a change was intended in
economic policy in the pursuit of other goals. T here were a num ber
of features which became identified with Maoism: a move away from
centralized planning and from one-m an m anagem ent towards a
more decentralized administration, the ending of piece-wages and
bonuses for individuals and the placing of m oral incentives in the
foreground; ‘enterprises m ust become places to train people as well
as produce goods’ was the slogan advanced. While these methods
gained some sympathy outside China and appeared toj offer an
alternative to the over-centralized Soviet planning system, as a way
137
of advancing towards socialism they proved to be economically
disastrous. Production in the factories was disorganized by attacks on
the old m anagem ent or by disputes between the workers. Prolonged
political struggles, and in some places pitched battles, took place
between rival factions. T he educational system was disorganized and
research practically stopped. Many leaders and cadres identified
with previous policies were denounced and sent in disgrace to
perform m anual work in rem ote areas. Youthful Red Guards and
other activists moved about the country by train or bus while raw
materials and essential goods no longer reached their destinations
on time, owing to the disorganization of the transport system.
W hatever else it did, therefore (and many o f its results proved
to be short lived), the Cultural Revolution certainly checked the
m om entum of industrialization. D uring 1967—68 there was an actual
fall in output of up to 20 per cent. Little new capital investment was
put in hand and the supply both of consum er goods and chemical
fertilizers fell back. It seems that ‘m oderate’ elements in the lead
ership intervened to keep production going in defence industries,
and that agriculture was not too seriously affected. Moreover, the
setting up of new m anagem ent structures and the downgrading of
material incentives, whatever their justification, had the effect, in
the short run, of bringing down production. But then the goal of
increased production was regarded as ‘economism’, tantam ount to
a retu rn to capitalism.
A fter about three years the Cultural Revolution had ru n its course
and by 1969 there were desperate appeals in the press to increase
production again. In fact, despite the years of upheaval and turm oil
and the hum an suffering involved, none o f the basic problems facing
China were any nearer to solution nor, in reality, had the differences
within the leadership been finally resolved, despite Mao’s apparent
victory. Questions such as what kind of planning should be pursued
- the relative priority to be accorded to industry and agriculture;
the tem po of growth; the structure of m anagem ent; of material
incentives versus other sorts for greater production; o f w hether it
was better to be ‘red ’ than expert - all rem ained posed as starkly
as before. Although food production does not seem to have been
badly hit by the turmoil, a big effort was called for to restore and
increase industrial production. Indeed, the Maoist purity of the
methods used tended to be less im portant than the results, though
the achievements and sacrifices of particular groups of workers
were still held up as models. T he point was that an undoubted
contradiction existed between the needs of productive efficiency
138
and the Maoist goal of the Cultural Revolution. An influential
section of the leadership, although tem porarily muzzled (or giving
unwilling lip-service to the Party line), had quite different views to
those of Mao as to how China’s problems should be solved. Events
were to show that they were biding their time for a comeback
which was not to be too long delayed. It was brought nearer by
the failing powers of the ‘Great Helm sm an’ and by the dislocation
brought about by the Cultural Revolution he had inspired, though
the excesses were tactfully blamed onto others.
In any event, in the early 1970s expansion began to be resum ed
on m ore orthodox lines. A num ber of new plants were built for
chemical production and steel-making and the petroleum industry
was developed using m uch im ported machinery. Corresponding but
not spectacular improvements were m ade in comm une agriculture,
while a m ore relaxed attitude was adopted towards the cultivation
of private plots by the peasantry. Organization was evidently less
rigid than originally intended and work tasks were allocated in
such a way that families and village groups could still be identified.
Although accurate inform ation is scanty, food supply seems to have
kept pace with population growth and there was a steady increase
in the output o f industrial crops. Clearly, with population growth
continuing at a high level, despite propaganda for birth control,
there could be no relaxation in the drive for production; the
margin between food production and the mouths to feed rem ained
uncomfortably narrow. Moreover, significant differences in food
supply and well-being between different parts of the country had
not been overcome. Some areas were extremely poor and showed
little improvement. T here were also wide differences between the
m ore prosperous communes and those which had less fertile land
or faced difficult climatic conditions.
THE NEW ORTHODOXY
Changes on the political front, beginning with the T enth Party

Congress held in August 1973, heralded a swing back towards m ore
orthodox economic policies. T he following years saw the radicals
reasserting themselves in a num ber o f propaganda campaigns. In
1976 came the death of Mao Tse-tung and the subsequent arrest
of the so-called ‘Gang o f Four’ representing the radijcal wing
who were now m ade scapegoats for the difficulties following the
139
Cultural Revolution, while a num ber of its prom inent victims were
rehabilitated and some found their way back into power. A relatively
unknown provincial official, H ua Kuo-feng, took Mao’s position,
evidently hoping to preserve continuity, but his reign proved to be
transitional. T he real force behind the post-Mao transform ation of
policy was one of the old guard discredited during the drive against
the ‘capitalist roaders’, a form er Mayor of Peking, T eng Hsiao-ping.
T eng had an alternative program m e, a determ ination to carry it out
and the personality and standing in the party which enabled him to
assume control.
In the years following Mao’s death, T eng and his supporters called
for the repudiation o f the Cultural Revolution and for the adoption
of new policies. In the course of a bitter struggle in the summits of
the party they succeeded in defeating H ua Kuo-feng as well as the
hard-line Maoists. A new coalition committed to thorough-going
reform took over. Mao’s economic policies were criticized and
rejected. They were seen as having slowed down the growth of
production and the im provem ent in material conditions, which
many people saw as the purpose o f the revolution. T he keynote
now became what was called ‘m odernization’: concentration on the
developm ent of the productive forces by every technological and
organizational means. This was precisely what Mao had denounced
as ‘economism’. In practice, Mao’s policies had led to political
turm oil, victimization o f critics, a stagnant level of consum ption
and bureaucratic abuses. T heir popular basis had been eroded and
where ideology had apparently failed, T eng and the pragmatists
were able to move in.
From 1977, and at an accelerating rate from 1982, the unwinding
of many of the changes w rought by the Cultural Revolution went
on side-by-side with a review of the country’s needs and possibilities
—priority was to be given to the achievement o f faster economic
growth - together with the im provem ent o f living standards. More
emphasis was laid upon food production; short-term objectives took
precedence over the long-term re-shaping o f society and of hum an
psychology which had previously been dom inant. Technical experts,
specialists, teachers and others who had been disgraced during the
Cultural Revolution were re-instated. Foreign models of economic
developm ent were studied carefully and, within a few years, China
was opened to the outside world on a scale and in a way which would
have seemed unbelievable in Mao’s time.
T he communes, which had been the centre-piece o f Mao’s
agrarian policy, were effectively dissolved. Responsibility was
140
shifted first to the production team (generally the form er village)
and then, in 1983, to the family unit. Subsequently, in most parts
o f the country, there has virtually been a retu rn to family farm ing,
a m ajor concession to the peasantry. T he state makes contracts
with the peasants to ensure supplies o f food for the towns and
raw materials for industry; the rest of production goes to satisfy
household needs or can be sold in the market. U nder the slogan ‘get
rich’ introduced in 1979, peasants have been encouraged to produce
m ore for sale and they have been freer to diversify production in
accordance with m arket dem and. ‘Household responsibility’ has
taken over from the commune, with families allocated tracts of
land. Incom e was m ore closely geared to output, thus tending to
m ore inequality between different areas and regions and between
households within the limits o f the form er commune. With this went
the passage o f m uch farm m achinery and draught animals into the
ownership or m anagem ent o f private households, especially in the
richer agricultural regions. Similar changes were introduced into
industrial m anagem ent, which reverted to something m ore like the
Soviet pattern introduced after 1949 and superseded at the time
of the ‘G reat Leap Forw ard’. More authority was now placed in
the hands o f the plant director and his m anagerial and technical
associates, and the hold of the Party was tightened up. T he idea of
educating the workers and giving them some participation in the
making of decisions was now subordinated to production efficiency.
H itherto Chinese planning had laid down fairly rigorous guide
lines for each enterprise in what was called the ‘five-fixed’ system.
T hat is to say, the following were prescribed by the plan and had
to be adhered to: the type and quantity of the product; the num ber
of workers, the am ount o f raw material and the sources o f supply;
the am ount o f fixed and circulating capital; and the cooperation
between enterprises necessary to fulfil the targets. T he post-Mao
tendency was to give the plant directors greater discretionary powers
in obtaining means o f production as well as in disposing of the
finished product. At the same time, there was a retu rn to incentive
and bonus payments to stimulate increased output. Discipline was
tightened up and norm s laid down for the workers or teams and a
m ore rigid division of labour was also imposed. Propaganda media
called for the study of scientific m anagem ent and of the advanced
technology o f the capitalist countries.
Each enterprise was now encouraged to keep down costs and
increase returns and accounting profits were taken as ^n index
of perform ance. W here the new m ethods of m anagem ent were
141
introduced, plants were perm itted to retain 5 per cent of the
planned! profits for their own use, together with 20 per cent of
any excess. T he level of profits determ ined the scale o f bonuses for
the m anagerial personnel and the workers. Failure to make profits
would result in loss of bonuses and other sanctions. Enterprises
which m ade satisfactory profits were rew arded in other ways, for
example, by being given priority in the supply of new machines or
raw materials. T he state’s accumulation fund could now be seen
to be tied directly to the profitability of the individual enterprises.
Legal codes and judicial procedures necessary for the enforcem ent
of the new system of m anagem ent were brought into operation. On
the economic side, the system of pricing came to be a m ore accurate
reflection of supply and dem and considerations. T here was,
therefore, some effort to combine planning with regard for m arket
forces in a move towards an economy resembling the Yugoslav
system o f ‘self-m anagem ent’. All these changes, and others of a like
kind, such as the introduction of m ore stringent financial controls
over industry, ran contrary to the Maoist canon o f putting politics
in command. T heir general tendency was to emphasize material
incentives and productive efficiency at the expense of distributive
justice, greater social equality and increased popular participation.
T he influence of the Soviet model by no means disappeared, even
during the Cultural Revolution. Five-Year Plans continued to be
adopted, the shape of the planning system and the emphasis of
policy on building a powerful industrial base, could all be said to
reflect Soviet practice. By the end of the 1970s, with the departure
from Maoist principles, the similarity between Chinese and Soviet
planning once again became closer despite the continued political
antagonisms.
Chinese policy has always been nationalistic, it has stressed self
reliance perhaps with the grim warning of the unequal treaties in
mind. Soviet aid was willingly accepted after 1949 and the im port of
Soviet plant and equipm ent, as well as the presence of Soviet experts
and advisers (num bering some 7,000), gave the initial stimulus for
planned industrialization. This aid was m ade available on loan and
had all been paid for by 1964. Subsequently China has im ported
machinery from capitalist sources, but this has had to be paid for
and has required credit from foreign commercial banks. At the end
o f the 1970s, as part of the new economic policy, large orders were
given to foreign firms some of which were later cancelled or scaled
down for financial reasons. Nevertheless, the principle has been
accepted that China should extend its trade and other links with the
142
world m arket and buy the technology necessary to carry through the
industrialization program m e. T he main constraint is that Chinese
exports have not been able to grow on the scale necessary to pay for
large-scale imports without foreign credits. T he Chinese leadership
obviously feels that heavy indebtedness to foreign banks will lead
to political dependence. Even so, a law passed in 1979 perm itted
foreign firms to invest up to 25 per cent of the capital for joint
ventures in China, with an undertaking that they will be free to
repatriate their profits. Foreign-style consum er goods are now given
wide publicity even when they are not available, presumably as part
of the incentive policy aimed to encourage individual effort.
T he aim of self-sufficiency, or something approxim ating it, is, as
we have seen, an inheritance from the Stalinist policy of ‘socialism
in one country’. T he strains of China’s industrialization reflect the
application of this policy, notably in the building up of a heavy
industrial base. D uring the early years after 1949, Soviet aid did
something to alleviate the strain. After the split, ‘self-reliance’ was
stressed even more; on the other hand, it led to greater emphasis
being laid upon agriculture and decentralized rural and small-scale
industry, which was reasonable, given Chinese conditions. In prac
tice, however, China has not been able to insulate itself from the
world market. For instance it has had to im port food grains to make
good bad harvests, and the current m odernization program m e
depends largely for its success upon the ability to obtain, and pay
for, foreign technology. It is now accepted that China cannot be
self-sufficient and that there is m uch to be learned from foreign
experience, including that of other Asian countries such as Korea
and Japan. China’s economic interests have always come before
support for revolutionary movements in other countries.
A RELATIVE SUCCESS?
Nevertheless, Chinese experience in m odern industrialization

depended upon a successful revolution fought out with much
upheaval and violence. It m ade possible a complete reorganization
of the agrarian system, without precedent in other countries, as well
as the nationalization of the industrial sector. At the time of the
revolution, per capita income in China ranked it am ong one of the
poorest countries of the world. It had less industry than Russia had
inherited from Tsarism and a poorly-developed transport system.
143
T he technical level o f production, outside the m odern plants in
the forndjer treaty ports and M anchuria, was extremely backward.
T he population was huge and continued to grow. Considering the
low starting point Chinese perform ance has been respectable. One
estimate puts the growth rate between 1950 and the late 1970s at
6-7 per cent per annum and the growth in industrial production at
10 per cent per annum . After some slowing down, industrial output
rose to an average of 11.7 per cent per annum between 1983 and
1986. Industry has accounted for a steadily increasing proportion
of gross domestic product. T he figures suggest that industrial
output is about twice as high as that o f India on a per capita basis.
Nevertheless, China remains a poor country, while the changes o f
recent years have increased social inequalities.
T he leadership has not hesitated to use violence against its
enemies to achieve its ends. U nder Mao it deliberately resorted to
massive social upheavals involving unprecedented disorganization
of production in o rder to carry out its policies. Bitter conflicts have
been fought out inside the leadership. For years after the Cultural
Revolution, the educational system was in chaos and thousands of
the most highly-trained professional people in the country were
disgraced and sent off to do menial work, if not imprisoned. It is
difficult to say how m uch support all these changes had from the
mass of the people, or w hether they simply acquiesced. Certainly
the regime, whoever has been in control, has tried to carry the
people along by mass campaigns o f persuasion and propaganda.
W hen criticism has been perm itted it has been sharp and pertinent
and has attracted m uch interest and support.
T he old landlord, bureaucratic and compradore classes have
disappeared. Rule is in the hands of the party and state
bureaucracy which enjoys the privileges of office and power and
no doubt lives rather better than the mass o f the people, although
how m uch better it is difficult to say. In any case, the rural masses
have not been relieved of back-breaking work; probably their life
is m ore secure than it was in pre-revolutionary days and they can
perhaps feel that they are reaping the fruits of their endeavour,
or that they are contributing to the growth of the land in which
their children will enjoy a better life. In the factories it is doubtful
w hether industrial work has been m ade any m ore pleasant than
u n d er capitalism. Especially under Mao, an attem pt was m ade to
associate the workers m ore closely with the running of the enterprise
and to win their cooperation through a sense of participation in a
common effort. Since his death there has been some back-pedalling;
144
the emphasis has been not upon changing the m ethods of work but
upon increasing the output o f goods to be brought about by offering
material incentives.
Social inequalities may be less apparent than in the advanced
capitalist countries, the Soviet Union or developing countries like
India, but undoubtedly they exist. All visitors rem ark that the cadres
can be distinguished by the cut of their uniforms, their bearing and
style o f life. Despite the claim to be fighting bureaucratism , it is
evident that a bureaucratic stratum does exist and rules, and that it
has become m ore distinct from the masses since the death of Mao.
All policy measures are accompanied by unrem itting propaganda
campaigns, and quite contradictory lines have been plugged within
years or even m onths o f each other, to the probable confusion
and bewilderment o f many. Popular participation is not so m uch
a spontaneous thing as the harnessing of the masses to applaud
leaders, or to undertake tasks about which they have not been
consulted.
T he average Chinese may have m ore say about how he does his
job than a worker in a capitalist factory, but it cannot be said that he
possesses democratic rights in any real sense despite the flourishing,
at times, o f the dazibaos (wall posters and inscriptions). T he tendency
is to dem and obedience and passivity from the masses, in the hope
that this will lead to better living standards. T he degree of toleration
of dissenters has varied; in times of mass campaigns there has been
little or none.
T he repudiation o f Maoism after 1976 has m eant the substitution
of material incentives for revolutionary fervour. T he powers o f the
m anagers o f state enterprises have been extended. In the urban
areas the bulk of industry is in the hands of the state; the
non-state sector only employs about 4 per cent o f urban workers.
Private trade is mainly to be found in the service sector. Outside
the towns, however, there has been a proliferation of small-scale
privately-owned enterprises producing simple consum er goods.
Private industry could only employ up to five people outside
the owner’s immediate family. In W enzhou, near Shanghai, an
enclave of privately-owned businesses has been perm itted. Despite
the claims o f some observers that China is returning to capitalism,
the ‘com m anding heights’ of the economy are still firmly in state
hands. At the same time, the situation remains very fluid with
considerable debate within the leadership regarding the country’s
future course. T he increased scope for m arket dealings and the
emphasis on material incentives have led to widespread g raft and
145
corruption am ong officials. A new elem ent of risk and insecurity
has been introduced, with pools of unemployed labour in the towns
and the concomitant growth of criminality. Inflationary pressures
have also become disquietingly manifest.
T he most controversial aspect of the post-Mao era has been
the greater integration of China into the world market. This
has not ju st been a question of trade. T he state has sought
closer relationships with foreign capital. It is now accepted that
continued industrialization means borrowing foreign technology
and having closer relations with capitalist countries than in the
past. This has required some wholly new departures. More links
have been established between Chinese producers and their foreign
trade partners. Every source of foreign credit has been actively
pursued and assistance and advice have been obtained from United
Nations agencies, foreign governm ents and American consultant
firms. Above all, foreign investment has been encouraged in many
sectors of the economy, some by foreign corporations, others by
‘overseas Chinese’ mostly from H ong Kong. Since 1979 there have
been four ‘special economic zones’ on the south-east coast in which
foreign investment in export-oriented industrialization has been
encouraged. These enclaves of foreign capitalism m ade it possible to
employ low-wage Chinese labour to compete with other South Asian
exporters. Close ties have been established between firms operating
in these zones and businesses in H ong Kong (prime centre of Asian
capitalism which will be returned to China in 1997). Many of the
concessions to foreign capital m ade in the ‘special economic zones’
were extended to fourteen coastal cities in 1984. Eventually the
whole of coastal China was m ade as attractive as possible for foreign
capital. This policy, with its risks of growing capitalist influence,
remains controversial, though it clearly has the support o f the Teng
leadership. They see it as a means of speeding up industrialization by
adopting foreign technology and capital to widen an industrial base
still concerned predom inantly with servicing the national ecomomy.
Industrialization in China is identified as a national task, making
dem ands on every individual. This gives it a unique character.
However, the decisions are taken in the ruling circles o f the party,
and are not the result o f public discussion. Propaganda seeks to
enlist mass support and mobilize the masses for the tasks in hand,
creating a sense of solidarity which, may, to the outsider, seem like
nothing but regim entation. Industrialization in China has other
specific features. It has been carried out largely without foreign
help. Besides building giant plants and mobilizing labour on a large
146
scale for constructional projects, small scale, decentralized types of
industrialization have also been favoured. T he encouragem ent of
industries working for local needs, usually of a labour-intensive type,
would seem to offer a model which other developing countries might
follow. It means some degree of local or regional self-sufficiency,
taking the strain from an over-stretched transport system. However,
it is probably a second-best, justifiable in the short run, rather than
as a perm anent policy. It enables the simple consum er needs of a
predom inantly agrarian society to be met, but would seem to be
a costly and inadequate way of m eeting m ore sophisticated needs,
such a policy of rural and small-scale industry may enable other
resources to be channelled into the building up of producer goods
industries to provide the industrial base for future growth. Although
m uch attention has been paid to light industry, the need for heavy
industry to grow, if m odernization is to proceed, is clear enough.
W hat impedes the growth of heavy industry is technological weak
ness and lack of resources for accumulation. Despite continuous
industrial growth the industrial workforce in 1976 am ounted to
only 26 million.
T he great bulk of China’s population remains tied to the land
in an agriculture whose output barely keeps pace with population
growth. W hatever the achievements of Chinese industrialization,
therefore, it has still not yet succeeded in raising the living standards
of the mass of the people. It would seem that this basic task has now
taken precedence over the developm ent of new and m ore equitable
forms of living which seemed to be the ideal of the Mao period.
147
CHAPTER 6
Brazil: dependent
industrialization
Brazilian industrialization since the 1930s can be taken as an

example of what is described as the Import-Substitution Strategy,
widely followed in Latin America. In other respects, however, Brazil
can hardly be considered typical o f the region. Most obviously, it
is Portuguese not Spanish by culture and language; it also has a
large black population descended from African slaves. It has the
advantage o f being the largest country in Latin America, occupying
almost half the land area and having the largest population. This
means a diversity o f natural resources, many still not opened up,
and a potentially large hom e m arket. In principle this makes Brazil
a country which could support a large and diversified industrial
base. The question is, how far have these potentialities been realized?
During the period after the Second W orld W ar, industrialization
proceeded rapidly, resulting in one o f the highest growth records in
the world. However, while it can be claimed that the foundations for
industrialization were being laid in the nineteenth century, Brazil
is very m uch a late-comer to the world scene of industrialization.
T he reason for this is to be found in its history as a dependent
country. Brazil was politically dependent upon Portugal until it
became a sovereign state, then economically dependent, first upon
Britain and then upon the United States. Its history is reflected in
the secular problems inherited from the colonial past. Despite the
industrial build-up of recent decades, endowing it with an advanced
m odern sector, large areas o f the country rem ain backward and
the population desperately poor. For centuries Brazil has been
a prim ary-producing country, highly dependent upon foreign
dem and, and remains so. Recent growth has depended to a
large extent upon an inflow o f foreign capital, making Brazil one
148
Brazil: dependent industrialization
o f the most highly indebted countries in the world. T he economic
vicissitudes o f the present century have aggravated social strains and
contradictions, held in check by authoritarian regimes based upon
the military. Although there has been an impressive advance along
the road o f industrialization, widely hailed as an ‘economic miracle’
in the late 1960s and early 1970s, it has not overcome the poverty
endemic in m uch of the country. Progress has been extremely
uneven and remains fraught with difficulties. An excursion into
the past is necessary in order to understand Brazil’s contem porary
problems.
PORTUGUESE COLONIZATION
Brazil became im portant to world history when the area was

discovered and colonized by the Portuguese conquerors during
the sixteenth century. At that time Portugal was a small country in
decline; Brazil was a vast and varied territory sparsely populated
by loosely-structured ‘Indian’ communities. These were able to put
up little resistance to the intruders who, though small in num ber,
came equipped with E uropean technology and weapons of war. T he
object o f colonization at this time was, o f course, material enrichm ent
in the quickest m anner possible: by the search for precious metals
and the plunder o f the existing societies’ wealth. W hen these
m ethods reached their limits or proved unsuccessful, the next best
thing was to tu rn the local inhabitants into a labour force for the
production o f staple products for sale in the European and world
markets. In this respect Brazil was, for a long time, something of a
disappointm ent. T here was plenty of virgin land and tropical forest
but no instant riches for the Portuguese invaders. In addition to
this their hold on the region was, for some time, disputed by other
European predators: Spanish, English, French and Dutch. T he first
staple product o f value was dyewood, in dem and in Europe for the
textile industry. T hen came sugar, which the Dutch, during the
period in which they occupied part of Brazil (1604-54), built up
into a flourishing industry.
Sugar was to prove to be the principal engine o f growth for the
colonial economy of Brazil during the early seventeenth century.
Unlike dyewood which was cut out of the forest, it required capital
investment to equip the sugar-mills, plenty of land cleared for
149
cultivation and a reliable labour force able to work in a tropical
climate. )Dn the whole, the original Brazilians resisted work for
their new masters; some were hunted down or killed off in battle,
many succumbed to Old W orld diseases against which their bodies
had no resistance. For a labour force, the white settlers had to look
elsewhere, namely to Africa, where Portugal also had colonies. Like
other plantations in the New World, those of Brazil were m anned
by black slaves. Slavery was to last in Brazil until 1888 and provide
the labour force for the sugar, coffee and other plantations upon
which the wealth of the Brazilian landed oligarchy was based.
In 1654 the Portuguese succeeded in expelling the Dutch from
Brazil, and the latter took their capital and skills to the West
Indies. Sugar production continued in north-east Brazil but the
developm ent of other, low cost, supplies from the Carribean made
it less profitable than before. Nevertheless, the sugar plantation
economy proved to be resilient to price fluctuations; the owners
simply accepted a lower income or found other sources. For
example, a cattle industry grew up to supply the food needs
of the settlers and the plantation labour-force. Some other crops,
such as tobacco, were also introduced. Slaves and the surviving
Indians employed in European enterprises, supported themselves
by subsistence agriculture; and this was always an alternative for the
less successful European immigrants. As time went on, some internal
trade developed in agricultural products or simply-made articles
for everyday needs. Export staples, principally sugar, enabled
plantation-owners and the m erchants who handled the trade, to
im port better-quality goods from Europe. Expansion was clearly
linked to the production and export of staples and depended very
m uch upon the course of external dem and. T he surplus extracted
from slave labour on the plantations was largely realized in the sale
o f exports and the retu rn flow o f other commodities from abroad.
T he internal m arket was limited both by high transport costs and
also by the presence of a large labour force m ade up of slaves whose
subsistence needs were provided for by their masters. Even when
exports boomed, as they sometimes did, the linkage effects were
limited; it m eant that a larger surplus came back to the slave-owners
in the form o f im ported commodities (or credits). T he tendency
was to consume, rather than to invest most o f the surplus. So far
as it was invested it went into buying m ore slaves and m aking m ore
land clearances. T he cultivation o f plantations occupied some, but
not all, o f the population, for there were other forms of cultivation
mainly of a subsistence nature. Subsistence farm ing was adopted
150
by runaway slaves who were able, in some places, to establish their
own communities, at least temporarily.
From the seventeenth century onwards, Brazil experienced a
series of booms; or, m ore accurately particular regions experienced
such booms. W hen these ended, as they inevitably did, the region
concerned would find its income sharply curtailed, because it no
longer produced an export staple in dem and on the world m arket
or because the price had fallen to a less rem unerative level. In
such cases, the area would tend to stagnate, withdraw in upon
itself, and tu rn m ore to low-productivity agriculture, whether using
slave or other dependent forms of labour, or that based on family
subsistence cultivation. In any case, there would be a falling off of
imports into the region and stagnation or contraction of the m arket
for m anufactured goods.
One such boom which brought tem porary riches came as a
result of the discovery of gold, and later diamonds, in the inland
plateaus during the 1690s. Gold, of course, was exactly what the
settlers were looking for in the New W orld but its discovery did
little to stimulate the economy of Brazil. W hen the mines were
exhausted, the region in which they were situated reverted to a
subsistence economy, consisting to a large extent of Europeans
who had initially been attracted by the gold rush. As for the gold
which was extracted, much of it found its way to Britain in return
for goods sent to Portugal, or to Brazil, and it contributed m ore to
the rise of the City of London as a financial centre than it did to the
developm ent of the producing country.
T he French Revolution and the wars which ensued were to have
a dram atic effect on Brazil, activating its economy and ending in
the break with Portugal. During the eighteenth century, Portugal
and her colony, following the M ethuen Treaty of 1703, had been
brought into a satellite relationship with England. In return for
the reduction in the duty on Portuguese wines entering England,
English m anufactured goods, notably textiles, were adm itted into
Portugal and her colony.
D uring the wars which followed the French Revolution, Portugal
became a battleground and a prize. Occupied by Napoleon’s troops,
it was cut o ff from Brazil. Following this, in 1808, Brazilian ports
were opened to foreign traders. Two years later by a treaty signed
with Britain, her goods could enter the country on payment of a
lower rate of duty than that imposed on goods from other sources.
With the occupation of Portugal by French troops the King and the
Court moved to the colony.
151
THE BRITISH INFLUENCE
These upheavals created conditions favourable for British trade

and enterprise to establish a predom inant position in Brazil.
British ship-owners and traders were virtually the only foreigners
in a position to benefit from the opening o f Brazil to trade. T he
establishment o f the Portuguese court in Brazil m eant that revenues
form erly sent to the m other country were now spent in, or from , the
colony. Although this may have stimulated some local industry of
a luxury or semi-luxury type, organized on artisan lines, it opened
up a wider m arket for the kind of goods which only industrializing
Britain could supply.
T he separation of Brazil from Portugal in 1822 resulted in its
becoming, to all intents and purposes, part o f Britain’s informal
em pire of free trade, a status which it retained until the First W orld
War. Brazilian developm ent over that period o f almost a century
has therefore to be seen in this context.
O f course, Brazil was not ruled from London. T he dom inant
slave-owning class was still sovereign and there was friction between
it and the British governm ent. A m ajor bone o f contention was the
slave trade which the form er had an interest in maintaining, but
which the latter wanted to ban. This conflict has to be seen in the light
o f changes in the Brazilian economy consequent upon the changes
in the world m arket following the French Revolution. In the 1790s
the great French-owned sugar plantation economy o f Haiti was put
out of action by a slave revolt. This caused an increase in sugar
prices and opened up new opportunities for the Brazilian planters.
However, they could only take advantage o f these opportunities if
they could be sure of the labour supply, hence their desire to keep
open the African slave trade. British interests, centred on the West
Indies, were, from the 1830s, against the continuation of the trade,
which was finally abolished in 1850.
During the early nineteenth century there was increased world
dem and for some other Brazilian staples, including cotton and
leather. British trade enjoyed a privileged position in both direc
tions, as British m anufactured goods secured a strong position in
the Brazilian hom e m arket and benefited from any rise in the
incomes of the planters. T he City of London became the source o f
credit and loans. In short, after independence from Portugal, the
new state became economically dependent upon Britain.
T he years after 1815 saw a general fall in the prices of prim ary
products on the world m arket which put an end to the commodity
152
Brazil: dependent industrialimtion
boom. W hen the new Im perial regime took over it had to grapple
with a series o f difficult internal problems, partly financial, partly
political - the discontent of some provinces - as well as with the
conflict with Britain over the slave trade. By the 1830s, however, a
new staple was coming to the fore which was to have a decisive role
in shaping Brazil’s subsequent economic development. Coffee had
been introduced as a crop in the eighteenth century and during the
time of the wars in Europe, had become an im portant export staple.
Coffee plantations, organized with slave labour, were carved out of
virgin forest lands mainly in south central Brazil in the hinterland
of Rio de Janeiro. Cultivation o f coffee later spread to the state of
Sao Paulo, which was to become the main coffee-producing, and
most prosperous, region of the country, with Santos as the port of
shipment.
Coffee-growing required large am ounts o f land as well as the
intensive use o f labour on the plantations. Land was abundant
enough and the slowdown in other parts of the economy made
slave labour available. In contrast with the sugar-planters, the coffee-
planters were m ore commercially-minded and entrepreneurial in
their attitudes. They were able to take initiatives in business and
establish their dom inance in political life. Policy was thus made
to serve the interests o f coffee: a commodity for which there was
an expanding dem and from most advanced countries during the
nineteenth century (with the exception of Britan where dem and
was actually falling). T he coffee-planters wanted cheap labour and
other inputs and also the necessary infrastructure of railways, ports
and handling facilities. They were in favour of ‘developm ent’ of a
certain kind and anxious to see Brazil emulate the civilized (i.e.
European) world. As long as investment in coffee was profitable,
however, there was no reason why they should be interested in
industrialization. Indeed, export earnings enabled them to buy
whatever they needed in the shape of m anufactured goods from
abroad, notably from Britain. Im ports were cheaper and of better
quality than local products, if they were available at all. It was easy for
them to accept the free-trade doctrines of British political economy
and to assume that Brazil’s comparative advantage lay in producing
coffee.
This was all the m ore so when Britain adopted a full free-trade
policy from the 1850s onwards, the beginning also o f an upsurge in
the world economy which boosted dem and for Brazilian coffee and
other prim ary products. T hroughout this period, British m anufac
tured goods held sway in the Brazilian m arket and there! was little
153
scope for local producers except in filling in the gaps. Unlike the
situation in N orth America where the interior of the continent
was being opened up by a class of free farm ers producing for the
m arket and having purchasing power, m uch of which was used to
provide their households with everyday articles o f consumption,
most Brazilian production was organized on the plantation system.
A part from that, in other regions, the agriculturalists were too poor
to buy much of anything. In other words, the hom e m arket grew
only slowly. T he linkage effects of coffee-growing were not unlike
those o f sugar production in the past. T here was some dem and for
locally-produced food and rough textiles for the slaves, inputs such
as sacks or tools which had to be purchased, purchases of furniture
and luxuries for the plantation-owners - but none of these things
offered m uch of a prospect for industrial investment. Most m anu
factures continued to be im ported. European imm igration was not
greatly attracted when there were still abundant opportunities in
N orth America. Some imm igrants might find jobs on the plantations
as overseers, on the railways, or in the growing business sector in the
towns; otherwise they might end up as poor subsistence farm ers, a
labour reserve for the large landowners. Moreover, the existence
of slavery tended to down-grade m anual labour for an employer.
T he abolition of slavery was a necessary part of the m odernizing
process which Brazil was undergoing as the economy moved
forward in the third quarter o f the nineteenth century, in the wake of
world prosperity. Britain was the model and m entor for the changes
Brazilian society was undergoing at this time, through commercial
and cultural contacts and the many British people handling business
in the country. W hatever the moral motives of the anti-slavery
campaign, abolition was also a response to a chronic labour scarcity
appearing in the m ore rapidly growing areas such as Sao Paulo.
Pressure was also coming from the wage and salary earners in the
towns. Slave labour tended to be immobile; it rem ained in stagnant
areas while employers elsewhere were crying out for labour.
Its existence discouraged imm igration and also tied up capital.
However, abolitionist sentiment in the country, strongly backed by
Britain, undoubtedly grew and, especially with its abolition in the
United States as a result of the Civil War, the continued existence
o f slavery was seen as an obstacle to m odernization. D uring the war
with Peru (1865-70) many negro slaves had been released to serve
in the army. After it was over, in 1871, the Law of the Free Womb
was passed whereby children born to women slaves were to be
freed on reaching their twenty-first year. In the following decade,
154
discipline on the plantations began to break down and in places
there were mass desertions. U rban officials and the military became
increasingly reluctant to play the ignominious role of rounding up
the chattels of the big landowners. More and m ore slave-owners
freed their slaves; by 1877—8 this became increasingly common as the
only means by which plantation owners could retain their labour
force. Clearly, the days o f slavery as an institution were num bered,
T he final act of emancipation in 1888, which granted the slaves their
freedom without compensation to their owners, was something of
a formality.
T he immediate future of the slaves depended very much upon
the area in which they found themselves; in some places the labour
m arket was overstocked, while in others there was a labour scarcity.
T he influence of slavery on work habits both of form er slaves and
free white workers did not disappear overnight. No doubt the
effects of slavery are still discernible in Brazilian society today:
descendants of form er slaves are to be found chiefly on the lower
rungs of the social ladder. Slavery introduced a large black elem ent
into the population of Brazil and while colour discrimination was
m arkedly less severe than in the United States it existed (and exists)
nonetheless. As for the immediate economic impact of abolition it
seems not to have been very pronounced one way or the other. In the
long run it probably contributed to an im provem ent in the quality
of the labour force, removed a discouragem ent to immigration,
brought about the spread of the wage-system and increased the
potential of the home market.
T he coffee economy continued to be the m ajor growth sector in
the closing part of the nineteenth century. T here was a shift towards
Sao Paulo and neighbouring states, and a growth in Sao Paulo city
as a financial and commercial, and also as a burgeoning industrial
centre. On the other hand, large areas such as the north-east, showed
little capacity for growth, while in others, cattle-raising and cocoa
producing for export provided openings for investment and some
employment.
T he Amazon region also experienced a short-lived boom as a
rubber producer following an increased world dem and for this
commodity. At its peak, rubber m ade up 20 per cent of the coun
try’s exports and tem porarily attracted a large wage-labour force.
After the First W orld War, Brazilian production wilted un d er the
pressure from the new plantations in Asia. T hroughout this period
external economic relations were dom inated by British mterchant
and financial houses. Loans were floated in the City of London,
155
financing state spending; British capital financed railways and the
rest of tHe infrastructure required by a prim ary-exporting country.
British m erchants controlled the im port-export trade, which was
carried in ships u nder the British flag, financed and insured in
London. T he inform al British em pire in Brazil did not extend
into industry; investment here was modest and not particularly
outstanding. At the same time, Britain did provide the m odel of
a m odern economy which many Brazilians wished their nation to
emulate. British machinery, m anagers and technicians undoubtedly
played a role in introducing m odern industry despite the limited
investment in this sector. British finance was indispensable in the
prim ary export sector which was the m otor of the whole economy;
even so, it was not associated with direct control or decision-making.
For all its financial dependence on Britain, Brazil rem ained an
independent country with its own ruling class. Certainly they
accepted their dependence on British investment and finance o f
trade. They could perhaps be described as ju n io r partners, and
Brazil as an informal or economic colony. W hen all that has been
said, Brazilians owned the coffee plantations, then the main source
of national wealth; as well as most of the other means of production
with the exception of the transport system. For the Brazilian ruling
class it was not a bad partnership.
MODERNIZATION
In any case, growing wealth, unequally distributed as it was, fostered

urban growth and investment in public buildings and m odern
utilities. Nationalism found expression in building up the attributes
of a m odern state: arm ed forces, universities, schools, law courts,
and hospitals could all be regarded as part of the process of m odern
ization, which prepared the way for subsequent industrialization.
M odernization began und er the Em pire (1822-89) and continued
m ore vigorously un d er the federal Republic which replaced it.
British dom ination of Brazil’s finances continued while the City
o f London rem ained in the ascendant, that is to say until the First
W orld War. To service its debt to London, Brazil depended upon
the sale of its coffee, rubber, cocoa and other prim ary products. Its
financial well-being hinged upon world trends in dem and for these
staples. Any fall in world m arket prices for these commodities m eant
a decline in income for the producers. It also m ade it m ore difficult
to find the foreign exchange necessary to service the debt to Britain.
156
T he coffee planters were in the front line here, and the economy
as a whole was highly dependent upon coffee. It was a dangerous
dependence, but the coffee-planters were powerful m en in politics.
Already, in 1906, the governm ent agreed to buy up coffee surpluses
in an attem pt to keep up the m arket price and thus the income of
the growers.
Until the First W orld War, industrial developm ent was on a
m odest scale, but it was growing, particularly in food-processing
and textiles. T here had been sufficient growth in population and
incomes to expand the hom e m arket for some goods with aid from
tariffs in some cases. T here was the beginning of the emergence of
an entrepreneurial class investing in workshops, factories and mills.
These initial, still hesitant steps on the road to industrialization were
most visible in the Sao Paulo area. Capital and enterprise were
attracted from the leading planter class, while the relative prosperity
o f the coffee-growing region widened the internal m arket for goods
and services. Im m igrant business men, often starting from small
beginnings in trade (competing with the British in some cases),
moved into industrial production. It was the familiar pattern of
rootless newcomers doing better than the natives and seizing the
opportunities presented by the developm ent o f m arket capitalism.
W here they retained contact with their hom elands (as in the case
of some o f the Italians for example), the newcomers turned this
to their advantage. Im m igrant businessmen had a sharp eye for
new possibilities. While they came into conflict at some points
with established industrialists from planter families, their common
interests tended to predom inate. These two streams contributed
to the form ation of a national industrial bourgeoisie which was to
play an increasingly im portant role in the economic developm ent
o f Brazil.
T he First W orld W ar had contradictory effects on Brazil and
there are disagreem ents among historians of the period as to their
nature. O n the one hand, Brazil’s main suppliers were involved
in the war and not able to supply the customary amounts of
m anufactured goods. Raw materials and interm ediate goods soared
in price or became virtually unobtainable. Apparently, then, there
should have been new opportunities for industrial investment, in
what was later to be called import-substitution, and Brazilian pro
ducers should have gained from the higher prices. Certainly there
were some of these expected effects. Allied war dem and generated
increased production in some sectors. Local machine-shops tried to
repair or replace machinery and equipm ent no longer obtainable
157
from abroad. In the main, however, there was no basic change in
the structure of industry and any stimulus that the war may have
given was short-lived. Thus it is necessary to be cautious when
appraising the favourable consequences o f the war.
With the restoration of peace, traditional sources o f supply were
reopened. American as well as European industry saw in Brazil a
promising m arket and were able to sell many kinds o f m anufactured
goods of a quality and at a price with which local industry could not
compete. For some local firms the wartime boom was followed by
a crisis.
Dating back to before the war, a debate was going on in economic
and political circles over the tariff issue, especially as it related to
m anufactured goods. Some said that foreign imports should be
checked to assist local production (the governm ent had at its disposal
what was known as the Law of Similars enabling it to impose duties
on imports o f goods similar to those which hom e industry could
produce). O thers saw the advantages of free trade and were content
to see Brazil profiting, as it seemed, from its comparative advantage
in the production of coffee and other staples. As long as coffee
production rem ained profitable and the governm ent continued to
support coffee prices, the free trade argum ent seemed to prevail.
DEPRESSION
Industrial growth was slow in the 1920s, while imports rose. During
the world depression of the 1930s the prim ary sector was hard hit,
while industrial production continued its growth. However, it is
doubtful w hether this can be seen as a great advance along the road
of im port-substitution industrialization. T rue, new investment did
take place in industry, some of it in the branch plants of American or
European firms, mainly for assembly and processing, jum ping over
tariff walls. T he home m arket rem ained narrow and circumscribed
and, certainly for the type of product of these foreign firms, was
confined to a relatively small num ber of higher-income recipients.
As for the mass of the people, some were hit by the decline of the
prim ary sector, and at the best their low incomes only perm itted
them to buy such items as cheap textiles w hether hom e-produced
or im ported. T hus the industrial structure was bound to reflect the
very unequal income distribution and the relative poverty of a large
proportion of the population. O f m ore significance was the impact
158
of the depression on the prim ary sector, hitherto the m otor of the
economy.
As the depression hit Brazil there was a catastrophic fall
in coffee prices, a fall in internal purchasing power and a
contraction of dem and for m anufactured imports. To deal with
the plight of the coffee-growers, the governm ent resorted to the
drastic practice of buying up and burning surplus coffee, thus
earning worldwide notoriety. In Brazil, industrial production fell
off by 10 per cent between 1929 and 1931, but quickly recovered
thereafter. Some accounts claim that industrial production rose by
60 per cent by the end of the decade. Lack of foreign exchange
and the fact that hom e-produced articles became m ore competitive
because of currency depreciation, assisted a transfer of consumer
dem and from im ported to hom e-m anufactured commodities. This
tendency was accentuated during the Second W orld W ar as imports
from belligerent countries were again sharply curtailed, especially
those of m anufactured and capital goods. Now the substitution of
the Brazilian-made for im ported m anufactures, which took place
initially as a spontaneous reaction to depression and war, became
the basis for a new, and m ore conscious economic strategy: import-
substitution industrialization (ISI).
As a prim ary producer Brazil gained during the Second W orld
War from voracious Allied dem and while imports were curtailed.
As a result, export earnings built up at a faster rate than foreign
exchange could be used to buy imports. Brazil accumulated currency
reserves in the countries it was supplying which could not be used
to buy goods for which there was a m arket at home. Export growth
and economic expansion had meanwhile increased money incomes
without a corresponding increase in output for the home market.
Inflationary pressures resulted, driving up prices by 1944 to almost
twice their 1939 level.
Meanwhile, Brazil’s external relations had been quite substantially
changed. T he depression of the 1930s and the war of 1939-45
completed what the First W orld W ar had begun: the ending of
British predom inance and the opening of the way for the United
States to take over. While the British stake in the economy had
mainly been through trade and portfolio investment in state bonds
and the infrastructure, the American interest was to include the
establishment of branch plants which had a direct effect on the
industrialization process. T here were early signs of this between
the wars, but it was not until the 1950s that it began to assume a
massive scale.
159
T o understand the depth o f this change it is necessary to consider
some o f the main lines o f developm ent in the political economy
o f Brazil from the onset o f the Depression. First there was the
installation of the regim e of President Vargas, of an authoritarian
type, but with a nationalist and populist appeal. Rather than
bringing any fundam ental departure in economic policy, however,
it sought to satisfy the dem ands of the coffee-producers and the
commercial-industrial bourgeoisie which had become o f increasing
political weight. It satisfied the first, so far as it could (as already
noted) by its coffee-support policy; the second it tried to placate
by stimulating domestic production o f industrial goods in an early,
and still largely unconscious, application o f the ISI strategy. It was
only after the war, however, that this policy was adopted in a
m ore coherent form. By then, un d er the pressure o f nationalist,
or anti-imperialist, sentiment there was a call for a policy which
would reduce dependence upon the export of prim ary products.
T he prices o f these products were subject to severe fluctuations,
but those which Brazil supplied suffered from other disadvantages.
They form ed a declining proportion o f world trade and there was
little prospect of a big increase in earnings from them. Requiring
little or no processing, they gave rise to only limited linkage effects
for the Brazilian economy and could not be expected to prom ote
staples-led growth along Canadian lines. It seemed, therefore, that
continued excessive reliance upon the established staples would
condem n Brazil to economic stagnation in the post-war period as
well to as continued dependence upon foreign (now American)
capital. This was not the complete picture; there had already
been some preliminary steps along the road to industrialization,
a class of industrial entrepreneurs was in favour of going further,
and looked to the state for support. Likewise, there were strong
reasons in the nationalist ideology which suggested the desirability
o f broadening the industrial base to give the nation the means to
uphold its independence. This ideology had a broad appeal.
TOWARDS INDUSTRIALIZATION
Even without any clearly form ulated ideology of economic growth

or deductions from an analysis of Brazil’s economic position, the
experience of the war and the new world situation at the end
o f it, propelled the governm ent into what was, in effect, an
industrialization policy o f a m ore positive character. Pragmatic at
160
first, it increasingly took shape as a set o f measures intended to
endow the nation with a m ore diversified industrial base and a
m odernized infrastructure. Specific program m es along these lines
were recom m ended by the Joint Brazil-United States Economic
Commission in the early 1950s and then by the influential Economic
Commission o f Latin America (ECLA or CEPAL) set up un d er the
auspices o f the United Nations. T he latter urged powerfully that
industrialization was the way out of Brazil’s problems and that it
would substitute ‘developm ent’ for ‘dependency’. This became part
of the ideology of a group o f leading Latin American economists
connected with this body. It was assumed optimistically that if the
impetus for industrialization was given, with the state playing the
active role, it would lead to a process of self-sustaining growth
sufficient to overcome secular backwardness and bring about a rise
in incomes and living standards. T he ISI strategy was seen as the
one best suited to Brazil’s situation as a prim ary-producing country
still largely dependent upon im ported m anufactures. As has been
seen, the measures taken to deal with the depression and the trading
problems created by the war had prepared the ground.
A fter the war, as economies began to be restored, the tide
o f imports into Brazil began to worry the governm ent and from
1947, in line with past policies, it adopted a policy of selective
im port controls. T he aim was to curtail the influx of consum er
goods while still perm itting the im port o f capital goods or raw
materials required by domestic industry at low or no duty. Using
the long-established Law of Similars it thus imposed tariffs chiefly
on goods already made, or which could be made, inside the country.
This policy o f selective protection, or infant industries’ tariffs, could
thus be used to steer industry along the im port-substitution path. At
the same time, the existence o f tariff walls on some m anufactured
goods which Brazil was not yet able to produce encouraged foreign
(particularly American) firms to set up branch plants, at first mainly
for assembly. Once they had em barked upon this investment,
however, they m ight be prepared to go fu rth er until all, or almost
all, the finished product was m anufactured inside the country. T he
ISI strategy was expected to have beneficial results, but it also had
others which were not so welcome.
R E S U L T S O F T H E IS I S T R A T E G Y
W hen the new industrialization policy began to take shapp, in the
early 1950s, Brazil was still an underdeveloped country. Despite the
161
growth of industry and m odern capitalist institutions in some parts
of the country, vast regions were dom inated by low-productivity
agriculture. T here was m uch rural unem ploym ent and underem
ployment. Average per capita income was one of the lowest in the
world. From the national point of view, huge disparities in levels
of developm ent and incomes posed many serious political as well
as economic problems. M odern trade and financial activities as
well as such organized and large-scale industries as existed, were
concentrated in a few urban areas, principally in the south-centre
region. O ther areas, such as the north-east, centre o f the sugar
production which had prospered in distant colonial days, now
stagnated at an extremely low level of average income. They
had large populations but no resources or other advantages likely
to attract industrial investment. Moreover, the mass o f the people
in agriculture, w hether subsistence cultivators, casual labourers or
estate workers, had little purchasing power. T he main dem and for
industrial products came from the high income groups in the towns,
from the growing ‘middle classes’ m ade up of state employees, small
property owners and the business and professional people. T heir
disposable incomes put them much closer to their counterparts in
the advanced countries in their lifestyle than to the rural masses.
They were also the most susceptible to the ‘dem onstration effect’.
T hat is to say, they were influenced by, and desired to emulate, the
consumption standards and tastes of the high income countries.
Many of these wants could only be met by imports. As the ISI
strategy - if it can be distinguished by such a title - came into effect,
it did so in response to m arket forces. It thus tended to encourage
chiefly the production of consum er goods for those with higher
incomes; it did little or nothing to raise the incomes o f the mass of
the people. T he dem and for this type of good could be m et partly
by local firms expanding and diversifying their production. As they
did so, however, they found it necessary to im port m ore advanced
technology; so, instead of im porting consum er goods, Brazil was
im porting the machinery to make them. Furtherm ore, at some point
the actual or potential m arket in Brazil for particular commodities
became large enough to attract foreign firms to set up assembly
or production facilities behind the tariff wall. T he tendency was,
therefore, for production of certain items, such as consumer
durables and other sophisticated products of high-income societies
to increase, because they fitted in with the urban pattern of life of
the m iddle and up p er classes. At the same time, o f course, there was
a growth in the industrial labour force who also had to buy goods
162
and services in the m arket, but with lower average incomes.
T he contradictions of the ISI strategy arose out of the nature of
the Brazilian economy. T he nationalist, populist and military-style
governm ents which have ruled m odern Brazil have all upheld the
principle of the private ownership of the means of production and
the primacy o f the m arket as a distributive mechanism. T here has
not been any question, therefore, of the nationalization of industry
as a whole or of state intervention to correct the massive inequalities
in the distribution of wealth and power which go back to colonial
times. Brazil has accepted its dependence upon the world m arket
dom inated by a few capital-rich advanced countries. As the organ of
the property-owners, the state has upheld and advanced their inter
ests both against other classes in Brazilian society and in bargaining
with foreign governm ents and business. In a country such as Brazil,
the state could not avoid taking responsibility for those aspects of
economic developm ent which private capital, national or foreign,
was unable or unwilling to finance and prom ote but which were
nonetheless necessary for industrialization.
T hus there has been a history of state intervention in Brazil
to supplem ent and correct m arket forces. For example, under the
Law of Similars, tariffs were used to encourage investment in local
industries as well as to raise revenue. As early as 1906 the state
intervened in the coffee m arket in the interests of the big producers
and it did so even m ore in the 1930s when it also imposed all-round
tariff increases. T he depression and the war pushed the state into
deeper involvement with economic policy-making. In particular it
assumed responsibility for financing and prom oting some basic
industries and additions to the infrastructure which were beyond
the scope of private investment. It set up a developm ent bank
(BNDE) to assist private firms needing capital for expansion and
prom oted some joint ventures between the state and private firms.
T he Kubitschek regime launched the Program m e of Targets in
1956, setting out production aims for achievement by both private
and state enterprises. Brazil seemed to be adopting the kind of
indicative planning which was fashionable at this time in a num ber
o f capitalist countries. O ther special projects were put in hand, such
as the initiation o f a m otor car industry, with private capital. A vast
steel complex, Volta Redonda, had been launched during the war
and it was followed in the early 1950s by the form ation of several
powerful state corporations, notably in the petroleum industry
(Petrobras) and in electric power generation (Elektrobras).
These activities o f the state in the ecomomic sphere had as their
163
general outcome the prom otion of capital accumulation (private
and state) and the establishment of basic infrastructure without
which industrialization could not have gone ahead. T here was no
need for a particular ideology or philosophy o f state intervention,
nor was the transition particularly dramatic. Objective conditions
really compelled governm ents to take economic initiatives which
would not have been acceptable before. T here was no hostility to
private capitalism as such in the state’s measures, nor any intention
to displace it (though at times it might have seemed to be so to
some nervous foreign observers especially in the United States).
State policy overall, operated m ore or less in harm ony with the
industrial bourgeoisie in Brazil and with the foreign m ultinational
corporations which were to play a steadily increasing role in Brazil’s
industrialization. T he range o f state intervention and the new state
bodies active in the economy brought a section o f the bureaucracy
onto the scene as an economic force. Linked with the up p er and
middle class, and with the arm ed forces —which came to play a
dom inant political role —they constituted a special interest group.
Its m embers played an entrepreneurial role, not against, but in
harm ony with business, both national and international. However,
it also had its own point of view and its own interests to defend.
T he growing role o f the state industry and public utilities had its
corollary in the m anagem ent of m onetary and credit policy by the
banks and the finance ministry. Once the objective o f rapid growth
un d er the ISI strategy had been adopted by the state, this meant,
in practice, inflationary finance through state spending. Preventing
inflation from getting out of hand without sacrificing other
developm ent objectives has been a besetting problem of Brazilian
economic history for over three decades and no answer has been
found. Inflation rates have soared to heights which seem fantastic
by European standards, yet the economy has survived and grown.
Perhaps inflation of this kind is inevitable in an underdeveloped
country undergoing industrialization u nd er the conditions o f the
capitalist m arket with state initiative.
Since the early 1950s, industrialization, although rapid, has taken
place mainly in a series of forw ard surges followed by slowdowns.
The reason for these fluctuations can be found partly in world
m arket trends and partly in a self-generating cycle of reproduction
and over-production. T he first two m ajor upswings can be traced to
the initial ISI strategies, and took place in 1947-52 and 1956-61.
Later growth surges, such as that of 1968-74 (the so-called ‘Brazilian
economic miracle’), have been strongly m arked by the investment
164
decisions o f the multinational corporations, the new stage in ISI
and the growth of m anufacturing exports.
A lthough other Latin American countries adopted ISI strategies,
which were recom m ended for many ‘developing’ countries in the
1950s, Brazil has been, in a sense, the model country. This was
because o f its size and power in Latin America, its varied resources
(real or supposed), its large potential hom e m arket, its existing
industrial base and its abundant supplies o f labour. T he strong
nationalist bent of successive governm ents of the country, as well
as the support and goodwill o f the United States, facilitated the
process. Industrial firms owned by Brazilians were ready to seize
new profit-making opportunities, while a num ber o f MNCs were
already established in the country when the objective o f rapid
industrialization was adopted in the post-war period.
A closer look at the ISI strategy shows that it was bound to
be imitative, in the sense that it aimed to replicate industries
already flourishing elsewhere. However, it could not do so in the
same way. For instance, since internal dem and was limited, scale
economies could not be realized to the same extent. W hat generally
happened was that, having taken an existing foreign model, say of
the m otorcar industry, the basic plant and technology would be
im ported. In the early stages there would simply be assembly of
im ported components and parts. In time, some o f these parts could
be m anufactured locally and a substantial am ount o f the bodywork
and chassis could be produced in the main plants. T hus the im ported
com ponent would decline.
As similar industries were set up they would create a dem and
for materials such as steel, rubber and alum inium and then for
interm ediate goods, machinery and machine-tools. As the m arket
for these items grew, then capital would be attracted into producing
them inside the country. In other words there would be a series of
backward linkages which would extend the industrial base. At the
same time, other linkages would appear. As m ore cars came on
the road there would be a dem and for petrol stations, servicing
and repair facilities, motorways, urban traffic control systems, and
so on. W orkers employed in these activities, m anagers and other
people receiving incomes, would create an increased dem and for a
wide range of goods and services. In theory, therefore, the economy
could be launched into an all-round process o f industrialization.
T he question was, however, how far, and how soon, such linkages
would come into effect. Clearly, though some goods were pow being
produced that had form erly been im ported, other goods would
165
have to be im ported to produce them. As industry became m ore
complex^ and as incomes rose, there would simply be a transfer to
a different range of imports. T hus the net am ount of substitution
might be negligible, at least for some time.
Problems of this kind do not m ean that the ISI strategy was
faulty. In any case, in practice the picture in Brazil was a dynamic
one: imports o f some items fell o ff while others rose and the range
of import-substitution did tend to become wider as it became m ore
profitable to produce the items concerned inside the country, rather
than im porting them. This was discovered by the MNCs as well as
by nationally-owned firms. In general, it was the newer product or
the one incorporating the most advanced technology which would
still have to be im ported. M arket forces, within the inherent limits
o f ISI, did tend to bring about, o v ertim e, a fairly balanced and
broadly-based growth. However, if anything, Brazil’s ties with the
world m arket became stronger and m ore crucial as the operation
proceeded.
A m ore significant criticism is that in Brazil the growth based on
ISI was confined to some regions and in the main benefited only
a minority o f the population; in both cases those already relatively
prosperous. Existing imbalances and disparities, instead o f going
away, became sharper. T he structure of production brought about
by ISI reflected the pre-existing distribution of purchasing power.
Represented in the new industries were those which supplied the
increasingly varied and growing volume of consum er goods, bought
largely, if not exclusively, by the upper-incom e groups, as well as
the interm ediate and capital goods required for their producton.
Some of the latter were, m oreover, still im ported. Only by opening
up new job opportunities, directly or indirectly, did ISI provide an
additional m arket for wage-goods (those consumed by workers).
Only as the other varieties of goods were cheapened, or came
onto the secondhand m arket (as in the case of cars and consum er
durables), did the wage-earners and other low-income people gain
any benefit.
As far as wages were concerned, these were probably higher,
on average, in m odern factories than in old-fashioned workshops
or in ordinary labouring jobs. U nder Brazilian political conditions,
trade union bargaining has been impossible or greatly curtailed. It
was in the interests of employers to hire no m ore workers than was
necessary to maximize profits and to keep the average wage below
productivity gains. If the benefits derived by workers from the
ISI consisted mainly of a job, then m ore than 50 per cent o f the
166
population tied to the low-income agricultural sector rem ained as
poor as before. D uring the period from the 1950s many hundreds
of thousands moved into urban areas to escape rural poverty and
to find work. Probably few found their way directly into factory
employment; many rem ained unemployed, did casual work or
were absorbed into the large low-wage, labour-intensive, tertiary
sector (including m uch domestic service). With population growth
continuing steadily throughout the period, per capita income grew
less than national income or industrial output. An already biased
income distribution tended to become m ore unequal, so that for a
large part of the population the statistical rise in per capita income
rem ained a meaningless figure.
In other words, the high rates of growth achieved by Brazilian
industry at the height of the industrialization drive, putting it into
the Japanese class, did not overcome the secular problems of
underdevelopm ent. Large areas such as the north-east continued
to stagnate, while rapid industrialization enhanced the advantages,
and pulling power for new investment, of the existing growth-poles,
notably the Sao Paulo area. It was here that the main new industries,
w hether nationally-owned or set up by the MNCs, were built up.
THE NEW REGIME
A fter the first surges of industrialization in the 1950s, the

economy appeared to run out of steam and by 1961—62 it was
in deep crisis. Balance o f payments deficits had built up a large
foreign debt, increasingly difficult to service. This indicated that
ISI, thus far, instead o f cutting down dependence on imports had
actually increased it. Meanwhile, the MNCs had been moving in and
foreign ownership and control of the m odern m anufacturing sector
was increasing. G overnm ent expenditure constantly outstripped tax
revenues by a large m argin and fuelled an inflationary spiral which,
in 1961, threatened to get out of control. As an engine of growth,
im port-substitution seemed to be running out o f steam owing mainly
to the limitations of the home market. In fact, inflation and the
slowing down of growth were closely connected, but control of the
form er, however desirable, seemed likely only to bring ISI growth
to a dead stop. In 1963 there was negligible economic growth while
prices rose by what was then a record 81 per cent. jA general
slowdown then set in which was to last until 1967. Meanwhile a
167
major political crisis erupted, for there was an arm y take-over in
April 19^4, which introduced a m ore repressive style o f rule and
also set economic policy on a new course.
T he new regim e’s diagnosis o f the crisis and of the problems
facing the country did not differ fundam entally from previous
diagnoses. For years official bodies and outside agencies had had
their say about the Brazilian economy and on some points there was
a m easure o f consensus about the main problems: hyper-inflation,
sectoral and regional disparities, lack o f employment opportunites,
rural poverty and balance of payments deficits. Social unrest and
even the direction o f the previous governm ent convinced the ruling
class that there was a danger o f revolution. T here was no doubt about
the nature of the new regime: it had to uphold the status quo by all
means.
T he regime brought about a revision of economic policy away
from national-populism, towards an approach which placed m ore
emphasis on m arket forces and encouraged the inflow o f foreign
capital. A uthoritarian governm ent was no novelty for Brazil, but
whereas previous regimes had left some scope for party politics,
parliam entary discussion and trade union bargaining, a general
clamp-down was now imposed on such activities, even if some
o f them survived. T he shaping o f economic policy was placed in
the hands of ‘experts’, known critics o f the previous governm ent’s
m ethods, and advocates o f a stabilization program m e designed to
control inflation, bring down wage costs and restore profitability
to industry. This program m e was regarded as a pre-requisite for
fu rth er growth. T here was a m uch stronger emphasis now on
m arket forces rather than on state intervention, and little sympathy
for social goals. T he main objective was to create a favourable
environm ent for continued capital accumulation, including foreign
investment and the attraction to Brazil o f m ore branches o f the
MNCs. T he initial response to the new policy was a slowing down
in growth which lasted until 1967.
During the period following the military coup the ground
was prepared for profitable investment in the future. Real wages
were held down or reduced. Governm ent spending was cut while
additional credit was m ade available to industry and also to the
m arket-orientated section o f agriculture. T he aim was to increase
production and productivity by raising profit expectations of
businessmen, landowners and farm ers. T he rate o f inflation was
slowly brought down from 91.9 per cent annual average in 1964,
year of the coup, to 56 per cent in the following year; not until
168
1970 did it come down to u n d er 20 per cent despite the declared
intention of the new policy-makers to bring it down to 10 per cent
in 1966.
A fter declining in the mid-1960s industrial growth rates rose
again between 1968 and 1974 in what was sometimes described
as the Brazilian ‘economic miracle’. This can be seen partly as
the deferred result of the new policies adopted un d er the military
regime, but it also has to be rem em bered that international
conditions were favourable. T he oil crisis o f 1974 was an
im portant factor in ending this phase o f growth. In any case, the
‘miracle’ was associated with the influx of foreign capital and the
fu rth er proliferation of branch plants of the MNCs, attracted by
high profit rates and the political stability offered by military rule.
Although the production o f these and already existing firms was
directed partly towards the up p er end of the hom e m arket, a new
factor came on the scene: Brazil’s exports of m anufactured goods
became increasingly significant. It also has to be underlined that
the dictatorial m ethods employed by the military regime kept down
wages, so that productivity gains were reaped mainly by business.
A fter 1964, the model o f industrialization underw ent a change.
This was not so m uch a sharp break with the previous ISI
strategy as a modification o f it, even an inevitable outcome of
the path already chosen. W hat happened was that continued
industrialization became increasingly dependent on foreign capital
and technology. Instead o f breaking the ties o f ‘dependency’, as the
advocates o f ISI had hoped, continued growth became increasingly
linked to investment by foreign firms and to overseas dem and.
Reviewing the process as a whole there were three participants in
the industrialization process: the state, the national capitalists and
the MNCs. Initially, by its investments in infrastructure and basic
industries requiring heavy outlays of capital, the state had acted as
trail-blazer and continued to play a supportive role. Its initiatives
had opened the way for profitable investment and m ore rapid
accumulation in the private sector. Nationally-owned industry had
taken what advantage it could of the possibilities offered by the
ISI strategy, but continued industrialization required recourse to
foreign firms which had the capital and the technology to establish
m ore advanced industries. T he activities of the state and the
build-up of industry owned by Brazilian firms, had only cleared
the way for the massive incursion o f foreign-owned firms whose
prospects for profitable investment depended upon a ceijtain level
of industrialization having been reached in the host country. The
169
branch plants o f these firms were producing sophisticated products
aimed npainly at the high-income m arket in Brazil. Local firms
lacked the capital and know-how to push into these fields, in
some of which the MNCs had been established for a long time.
Instead of perm anent conflict and destructive competition, a triple
partnership of state, local capital and the MNCs was consumm ated,
at least informally. ISI had indeed prepared the way for expansion
and capital accumulation, but instead of being the basis for national
independence, as its advocates had hoped, it became the vehicle for
the penetration of foreign capital on an unprecedented scale. Its
justification lay in the fact that it m ade possible rapid growth and
the so-called ‘miracle’ but the dependence of the Brazilian economy,
in a new form, was as unmistakable as ever.
T he MNCs set up their branch plants in Brazil because it seemed
good business to do so. Wages were being kept down and the military
regime offered security. T here was a large and growing m arket
in Brazil and the country was a useful export platform to attack
markets which could not be reached directly from the main plants
in the USA or Europe. A nother factor was that the MNCs had found
that the m arket in their original homes was reaching saturation
point, labour costs were rising and additional investment m ight not
give an average rate of return. On the other hand they possessed
valuable assets in know-how, brand names and m anagem ent skills.
They also had the finance, while growth could be provided for out
of retained profits or by raising capital in the host country.
For reasons already referred to, Brazil was looked on with
favour. As an apparently stable country, controlled by the military,
the largest country in Latin America and sharing a common
frontier with a num ber of other countries, it seemed the obvious
candidate to back up US policy in Latin America, in what some
called a ‘sub-imperialist’ role. Anything which strengthened Brazil
economically was therefore held in favour in Washington.
More specifically, compensatory tariffs and other factors m ade
it difficult if not impossible for the products of the MNCs to reach
the Brazilian m arket from outside. Better, therefore, to leap over
the tariff walls, get closer to the m arket and tap the reserves of
low-wage local labour un d er a governm ent not squeamish about
suppressing trade unions or left-wing political parties. Indeed, after
1964, the governm ent did everything it could, through favourable
laws, to encourage foreign firms and to enable their profits to be
repatriated. T he urban, middle-class m arket in Brazil was not very
different from that in the advanced countries. It was eager for cars,
170
consum er durables and all those internationally-renowned brands
with which its members had become familiar through travel,
advertising and films. It was at this m arket that the MNCs aimed,
and it was from the same source that, as time went on, they were
even able to raise capital for fu rth er expansion. T he state accepted
that a substantial part of the economy would be foreign-owned and
was happy to see jobs created and incomes, which it could tap for
taxation, increasing. To be sure, there were some local interests
which m ight be harm ed, or which were jealous of big, powerful
and foreign rivals, but in the main, the MNCs were complementary
to, rather than competitive with, local industrial enterprise. On the
whole, then, the triple partnership could function harmoniously.
THE CURRENT INDUSTRIAL SCENE
An investigation o f the current industrial scene as it em erged

during the upsurges of the 1960s and 1970s, shows that foreign
direct investment has become concentrated in a small num ber of
advanced industries; m otor vehicles, rubber, machinery, electrical
goods and the m ore sophisticated consum er goods. T he state sector
covers public utilities, petroleum , over 60 per cent of mining and
about one-third of the metallurgical industry. National private
enterprises predom inate in most of the rest o f industry. T he
am ount of direct competition between the three sectors remains
small while interconnections are o f considerable importance. W here
foreign capital is strategically placed, say in the new, large m otor
vehicle industry, its investment and current operations open up
markets for local firms in the supply of parts and components on a
subcontracting basis. Overall, the foreign ownershop of fixed assets
works out at about 15 per cent, which may not sound excessive.
However, in a country like Brazil that 15 per cent comprises the
most m odern plants in the advanced sectors of the economy.
Nevertheless friction between local capital and the MNCs has been
less than m ight have been expected; both look to the governm ent
to provide the conditions for the safe and rapid accumulation of
capital; and the concept o f the triple partnership seems to cover the
case adequately. All in all, foreign MNCs have m ade a substantial
contribution to Brazilian industrialization; what can be questioned
is w hether the type of industrialization they have prom oted is what
171
Brazil needs. T he long-standing problems of underdevelopm ent
from which m uch o f the country suffers rem ain unresolved.
So far then, u nder the original version of ISI, and the modified
version with exports playing a larger role, industrialization has been
no panacea. T here are still forbidding problems o f mass poverty
in the rural areas, and unem ploym ent and squalid housing in the
urban slums and shanty-towns. T he entry of the MNCs could do
little to overcome such problems. Once the local m arket showed
signs of slackening they moved into exports.
D uring the 1970s, m anufactured exports became of increasing
im portance in the Brazilian balance of payments w hether coming
from the branch plants of the MNCs or from nationally-owned
private firms. This emphasis can be seen as a result o f the failure
of the industrialization drive to create a mass home dem and for
m odern industrial products. T he distribution o f income is extremely
unequal, perhaps one of the highest in the world. T he share of the
national income going to the top 10 per cent of income-receivers
rose from 39.6 per cent in 1960 to 46.2 per cent in 1983. T he output
o f m odern consum er goods goes principally to a minority o f about
20 per cent. Meanwhile millions are short o f food or actually dying
slowly from m alnutrition.
Meanwhile, im port-substitution has not come to an end, it has
simply moved to new items as industrialization has proceeded. Since
the Development Plan adopted in 1971, m ore emphasis has been
laid upon the need to build up domestic production of capital goods
and basic industrial inputs. One motive for this has been to relieve
the pressure on the balance of payments and the need for foreign
capital. In fact, the experience o f industrializing countries shows
that im port-dependence tends to increase. T here is increased need
for export markets to make possible scale economies in industry
and to earn foreign exchange; there is need for imports to make
good local deficiencies and to take advantage of the international
division of labour.
Like other non-petroleum producing ‘developing’ countries,
Brazil was h ard hit by the 1974 oil price rise. T he economic ‘miracle’
by which the military regime had sought to legitimize itself, came to
an end. T here was a slowing down o f growth, costs rose relatively to
selling prices and profitability fell. In the mid-1970s, inflation rates
also began to turn upwards (40 per cent in 1976). T he balance of
payments deficit tended to increase. Foreign borrowing of all types
rose, much of it being necessary to service existing debts and to make
it possible to find foreign exchange for the payment of dividends and
172
interest to foreign private investors. Nevertheless, debts to foreign
countries continued to m ount, international bankers presumably
retaining confidence in the potential of the Brazilian economy.
As long as Brazil continues to have one o f the ‘moderately
repressive’ regimes favoured by W ashington, to play a key role
in its Latin American policy and to pursue a ‘liberal’ policy of
internationalization, it is likely to continue to enjoy the support
of foreign bankers. Knowing this, as long as the generals or their
conservative successors hold power they are likely to continue with
their policy: a modified ISI strategy with enhanced scope for the
MNCs. T he model of an autonom ous capitalist developm ent was,
for practical purposes, finally abandoned after the coup of 1964.
It gave way to the uneasy and still changing triple partnership
between state, national capital and MNCs already described. This
m odel has m ade possible rapid industrial growth even in periods of
international economic turbulence such as the 1970s. It has endowed
the country with a m ore diversified and up-to-date industrial base.
It has brought affluence to the m ore fortunate 20 per cent or so of
the population comprising the upper and middle classes. Some o f
the prosperity may have percolated down to other classes, including
the industrial workers. However, wages have been kept down by
an authoritarian regime which curtails civil liberties and workers’
rights. Despite repression, big strike struggles have taken place in
recent years, and the regime has had to make some concessions and
adopt a m ore liberal posture.
Many basic problems of the Brazilian economy and the society as
a whole have not been tackled. Rapid and uncontrolled growth has
brought new social costs. Large regions rem ain backward and little
has been done to assist their m odernization; there has been little or
no im provem ent in the plight of the rural population. In the cities,
in which a high proportion of the population now lives, there are
immense contrasts o f affluence and misery existing side by side.
A lthough Brazil is less dependent than it was once on coffee and
one or two other staples these still make a substantial contribution to
export earnings. Changes in world prices can thus have a consider
able effect on the economy. ‘Dependency’ has not ended, but it has
taken new forms: the massive indebtedness of the state to foreign
banks and international financial institutions and the penetration
of the advanced industrial sectors by foreign-owned MNCs. T he
ISI strategy has led to m ore rather than less involvement with the
world m arket. ‘
Brazil’s m anufactured exports, although they have been competi-
173
tive in some well-publicized cases, especially in the m arkets of
less-de4eloped countries, are exposed to intensified competition
in the difficult world economic situation of the 1980s. Brazil’s
position remains that of a subordinate capitalist country. While
industrialization has been going on for some decades, it is still
one-sided and incomplete. While it has m ade possible an extensive,
diversified and rapid growth of production and national income,
it has come up against a num ber of constraints and the social costs
have been high. T he deep poverty which is still the lot o f a large
part of the population is as anomalous as slavery was a century ago,
and seems still m ore difficult to resolve.
It is difficult to argue that consum ption had to be kept down
while the productive apparatus was built up. T he up p er and
middle classes have not been conspicuous by their frugality and the
privations o f the half or m ore of the population living in poverty
have served no useful purpose. They are still in the same position
as they were before: they produce little and can therefore buy little
and there seems no way in which their labour can be mobilized for
production. If policy continues along the same lines nothing m ore
than a slow and almost imperceptible im provem ent can be expected
in the lot o f those who live in the backward, low-income agrarian
regions. W orkers, especially those in m odern industry, have had a
better deal; on the other hand, it is they who produce the surplus
which makes possible continued investment in industry. T he
problem, for Brazilian capitalism, is to tu rn m ore low-productivity
or unem ployed peasants into productive workers.
If any industrialization is better than none and rapid growth is
an indicator of ‘success’ the Brazilian model m ust score high marks.
But, as suggested, there is m ore to it than that. T he continued
existence o f mass poverty, the inherent ‘dualism’ of Brazilian
society between the affluent and the poor, the regional disparities,
the spectacle of a still largely agrarian country which has to im port
staple foods, the large and growing foreign stake in industry and
endemic inflationary pressures, hardly add up to an acceptable
model. Social contradictions have been suppressed rather than
overcome un d er military rule. Attempts to control inflation have
produced recession and redundancy in industry which now needs
foreign markets to rem ain expansive.
Continued industrialization and m ore growth, along existing
lines, even if possible in the future — which is not certain —
do not seem likely either to improve mass living standards or to
reduce regional and income disparities. In the future, therefore, if
174
Brazil is to move from its present uneasy, semi-industrialized state,
not only a modification of policy but a wholly different model of
industrialization may be necessary. It would have to give greater
priority to raising living standards through agrarian reform , mass
education and the spread of skills, investment in social overhead
capital such as housing and the production o f cheap, standardized
factory-made goods for mass consumption. N either free m arket
forces, nor a military-technocratic governm ent susceptible to the
interests o f the property-ow ning classes, is likely to bring about such
a developm ent program m e.
T he early 1980s saw the Brazilian economy suffering from
the effects of recession in the advanced capitalist countries. A
popular movement hostile to military rule, supported by the trade
unions, resulted in the restoration of civil rule in 1984 when Jose
Sarney became president. T he generals withdrew from centre-stage
although not from influence over the economy. T he new regime
was essentially conservative but with no magical rem edy for Brazil’s
m ounting problems. D uring the period of easy international credit,
Brazil had borrow ed heavily from commercial banks and from the
IMF. T he huge loans had largely been squandered on military
hardw are, prestige projects and public spending, leaving little in the
way of productive assets capable of generating the additional exports
necessary to service them. In 1986 the governm ent declared a m ora
torium on its foreign debts. Growth could no longer be fuelled with
foreign money. At the same time, the economy was wracked with
high rates of inflation, resulting in several ‘plans’ designed to curtail
wage and salary increases and control prices. Despite the ending
of military rule (for how long no one can say because the army
still has its representatives in the government), there has been no
fundam ental change in policy. Brazil continues to pursue a modified
ISI strategy with enhanced scope for the MNCs. In fact, the export
sector periodically shows signs of a dynamism absent from other
parts of the economy. Meanwhile, Brazil continues to export quality
food products while millions starve because they cannot afford to
buy food whether home-grown or im ported. T here is no shortage
of arable land which could be turned to producing poor people’s
food; but that would require a governm ent able to grasp the nettle
o f agrarian reform . Anything which would raise the income of the
mass of the people in the disadvantaged regions of the country
would also expand the m arket for cheap m anufactured goods.
175
CHAPTER 7
Nigerian industrialization:
African variant
O f the Black African states, newly independent in the past quarter

o f a century, none has so far m ade much progress on the road to
industrialization, but of their num ber Nigeria would seem to have
the greatest potential. By far the largest, with m ore than 100 million
people, it has varied resources, a relatively well-educated and
adaptable labour force and a favourable geographical position. On
the face of it there is a potentially large home m arket and the basis
for the accumulation of capital and its investment in m anufacturing
industry.
Long exposure to the m arket and familiarity with m onetary
incentives in the colonial period had already brought into being
a local entrepreneurial class. In many respects, therefore, Nigeria
seems to have an advantage over many other developing countries
—an advantage which has increased with the developm ent o f its
vast petroleum resources. Nevertheless industrialization has been
slow and limited in character; the Nigerian economy still remains
essentially a prim ary-producing economy, dependent upon exports
to the world market.
THE COLONIAL INHERITANCE
An examination of the colonial experience is a necessary prelude

to an analysis o f Nigerian developm ent since independence in
1960. Like other areas of West Africa Nigeria suffered from the
debilitating effects of the slave trade until well into the nineteenth
century. This tied it into the world m arket and when the slave trade
176
Nigerian industrialization: African variant
came to an end, European m erchants sought other commodities
for which a m arket could be found. Palm products were the main
exports for some time; then, as Europe industrialized, there was
a growing need for raw materials or foodstuffs which could be
cultivated in the climate o f West Africa. In practice this m eant
that m erchants bought up crops grown by peasant producers in
response to cash incentives, encouraging m ore to tu rn over to
production for the m arket. Already in the course o f the second half
o f the nineteenth century Nigeria’s future as a prim ary-exporting
country was being shaped by its relationship to the world m arket
and the needs of the industrialized countries. Britain began to take
over this p art o f Africa from the 1850s, with Lagos becoming a
colony in 1861. In 1900 the territories opened up in the north
by the Royal Niger Company were brought un d er British rule,
becoming the Protectorate of N orthern Nigeria in 1902. These
various territories were amalgamated to form the colony o f Nigeria
in 1914. T hus Nigeria was an artificial creation of European
diplomacy and expansionism. As a colony o f the British Em pire it
was m ade up of three main ethnic groups and many smaller ones,
and its subsequent development, until the 1950s, was determ ined
by its colonial status. Governm ent by the British took the form of
indirect rule through traditional or newly-created chiefs appointed
by, and accountable to, an expatriate bureaucracy with no roots in
the country.
T he British adm inistrators’ perception of the Nigerian economy
came chiefly through its foreign trade, in which British m erchant
houses played a predom inant role. Like other colonies, Nigeria’s
role was seen as that of a prim ary producer for the advanced
m anufacturing industry of the metropolis, from whom it could
obtain such m anufactured goods as its people could afford. British
civil servants scarcely considered it their job to prom ote internal
developm ent by direct intervention; as in India they took comfort
in the belief that they brought the blessings of law and order. They
assumed that the natives would respond to m onetary incentives
and produce for sale what the British economy needed in the way
of prim ary products. It was taken for granted that external trade
would continue to be in the hands o f Europeans with capital, who
had contact with markets and superior entrepreneurial skills than
the Nigerians. At the same time, to facilitate trade, a m odern
infrastructure had to be built up, with ports and harbour facilities
to link the area with the world economy, and railways and roads
radiating into the hinterland. Like other parts of W eit Africa,
177
Nigeria was not considered suitable for white settlement; instead it
became British policy to uphold native ownership of the land so that
the export commodities were produced by small peasant proprietors
rather than on white-owned plantations as in East Africa. This
arrangem ent suited the needs of the foreign trading companies as
well. Nigerians played a subordinate role in assembling agricultural
products and distributing m anufactured imports. However, some of
the m ore sophisticated internal trade and finance was in the hands
of immigrants, most of whom came from the Levant.
Known m ineral resources in Nigeria at the colonial stage were
not sufficiently im portant to exercise a determ ining role in economic
development. British policy was to grant m ineral concessions exclu
sively to Europeans, assumed to possess the requisite am ounts of
capital and technological knowledge. In addition, during the First
W orld War, some coal-mining was undertaken by the colonial state.
However, prim ary production by the peasantry constituted the basis
of the colonial economy, the keys being held by the foreign trading
companies which dom inated the export-im port trade by virtue of
their ownership of capital. T he limited nature of known mineral
deposits gave the peasantry some protection against forced labour
and large-scale dispossession as happened in other parts of Africa.
In the case of tin mining on the Jos plateau and the Uri coalfields,
however, conditions were similar to those to be found in other
parts of colonial Africa and the administration used a m easure
of compulsion when it thought fit. Overall, however, the land and
its cultivation rem ained in the hands of the indigenous peasantry
rather than in those of an alien planter class. As trade expanded,
if only on a limited scale, some sections of the native population
increased their income and began to enjoy a modest prosperity.
U nder the colonial regime capitalist relations penetrated the
internal economy, in so far as the peasants went over to the
production of cash crops and responded to m arket opportunities.
This was necessarily an uneven process, having one-sided and
limited results arising from the m anner in which Nigeria was
inserted into the world market. T he home m arket also began
to grow as some Nigerians increased their money incomes
and peasant-farm ers needed to buy m ore inputs: m anufactured
imports tended to rise. T he colonial administration welcomed this
developm ent but it never conceived of developing m anufacturing
industry in Nigeria. T he only source from which capital for industry
could come on a large enough scale, apart from the state itself, was
the foreign trading companies. Until the early 1950s they displayed
178
little or no interest in setting up plants in Nigeria. It was still m ore
lucrative to im port cheaper and better-m ade foreign m anufactures
than to finance the production of Nigerian substitutes. Consumers
also probably preferred the form er for a variety of reasons.
Nigerians were able to accumulate capital on a limited scale,
w hether in agriculture, petty trade or such new fields as road
transport. Local entrepreneurs were not able to make the leap into
industry, mainly because they lacked adequate capital, technical
knowledge and m anagem ent skills. In any case they would have
to face the competition of im ported products, the supply o f which
was controlled by the big companies in an open-m arket situation.
Returns on capital were higher in other fields where the risks were
smaller. Hence, under colonial rule, Nigerians could hardly hope
to generate an industrialization drive after, say, the Indian model.
Likewise, there was little scope for the growth of a wage-earning
class outside such limited fields as governm ent employment and
the railways and docks. It should also be noted that for the most
part, economic activity continued on ‘traditional’ lines, producing
food and raw materials for the home m arket or articles for everyday
consumption, m ade in small-scale artisan-type workshops. Since
Nigeria is a large country with a diversity of physical features
and resources, inhabited by peoples of varied ethnic composition
and different historically-constituted cultural patterns it is not
surprising that, with the growing influence of the m arket, regional
differences should persist and widen. Some areas, especially those
near the coast, or those specially suited for the production of cash
crops in world dem and, were able to take fuller advantage of new
commercial opportunities than did others. D uring the inter-war
period, improved methods of agriculture, propagated by the
governm ent’s Agricultural Departm ent, were taken up more
readily in some areas, thus widening the gap with those less
receptive to change. Sections of the peasantry were able to increase
their cash incomes, buy m ore in the m arket and accumulate capital
on a modest scale. T he sons of these favoured strata began to
acquire an education and to seek employment outside agriculture.
T he growing economic infrastructure of roads, railways, storage
facilities and docks (centred mainly on Lagos at first) provided
new opportunities. So too did the growth of the adm inistration
and the tertiary activities associated with urban growth. Although
m anufacturing industry was virtually absent (at least in a m odern
form) before, during, and after the Second W orld War, tjiere was
a proliferation of people, linked with the peasantry, who had some
179
degree of economic independence as well as of wage or salary
earners, associated with trade and governm ent.
T he Nigerian economy represented a type of dependent, colonial
capitalism dom inated by the extra-territorial companies concerned
principally with m arketing the country’s prim ary products. T he
preservation o f the peasantry and the modest prosperity o f its
m ore favoured sections, together with other developments m ade
possible the constitution o f a national petty bourgeoisie within
the fram ework of this export-orientated, colonial economy. Its
m embers were responsive to m onetary incentives as well as to the
dem onstration effect o f the expatriate bureaucracy and the foreign
businessmen who dom inated the economic life of their country.
This was, in part, it seems, a result o f the superior education
and m anagerial and technical skills o f the new bourgeoisie. As
m entioned, there was little scope for native capital in industry,
but it did seek outlets in fields which promised to be profitable
although not sought after by the foreign companies. T he fields
which held promise included local trade, building construction and
the operation and repair o f road vehicles. While the economy grew
little during the 1930s depression, the world dem and for Nigeria’s
main exports did not decline as severely as that for some prim ary
products upon which other countries were dependent. T he export
trade was not monopolized by one or two commodities, but by a m ore
varied range; m oreover, the dem and for Nigeria’s newer export
staples, groundnuts and cocoa, showed a continuous, long-term
upw ard trend. U nder these relatively favourable conditions there
was less difficulty in paying for customary imports than in the case
of other prim ary-producing countries, and thus less pressure for
the establishment o f im port-substitution industries. In particular,
industry rem ained unattractive to the big foreign companies.
At the same time, a large part of the population was becoming
imbued with what m ight be called a ‘capitalist outlook’: it produced
for the m arket, it was familiar with the m onetary incentives, it
wanted to consume m ore and many o f the things it wanted to
consume had to be im ported. Both the m ajor exports and most
of the m anufactured imports passed through the hands o f the
extra-territorial trading companies who garnered the lion’s share
of the proceeds of a situation which was clearly in their interests.
M oreover there was a definite trickle-down effect, which was to the
benefit o f export producers and others concerned with the m odern
trading sector, giving them an interest in the existing state o f things.
Individual acquisitive desires, induced by m arket forces, grew up
180
alongside the traditional values of African society and tended to
predom inate as the m odern sector grew. Foreign observers were
later to see in the furth er developm ent o f these trends, and
particularly in the strengthening of the local entrepreneurial
class, the best hope for economic growth in Nigeria. However,
the relative prosperity of some sections of the population before
and after the Second W orld W ar depended completely upon
a favourable trend in the world prices o f a small num ber o f
prim ary products outside Nigerian control. These sections, in
turn, became addicted to consuming m anufactured goods from
foreign cultures and regarded them often as superior to, and m ore
desirable than, traditional products or hom e-produced substitutes.
Again, it is understandable that in this situation foreign firms were
not enthusiastic supporters of industrialization.
Meanwhile, traditional society was being disrupted and social
relations were being ‘re-arranged’ in accordance with the needs of
colonial capitalism. In short, foreign concerns m ade large profits,
but did not use them for industrial investment; some Nigerians
increased their money returns and accumulated capital on a m ore
modest scale, but had little incentive to invest in m anufacturing.
T here seemed to be no way in which the colonial adm inistration
would wish to alter a situation which offered so many advantages to
the metropolis and to the extra-territorial companies in particular.
Nigeria’s role as a prim ary producer, and a fairly successful one,
seemed to be in conformity with the ‘law’ of comparative advantage.
T he country was thus locked into a colonial situation which virtually
excluded industrialization as a way of raising income levels or
increasing economic self-reliance. Production relations were frozen
into a shape determ ined by the way in which the Nigerian economy
had been fitted into the world m arket un d er the control of foreign
business interests. In these respects, of course, Nigeria was no
different from other colonial underdeveloped countries; indeed, in
this Black African country a particular type of colonialism assumed
a classic form. T here was no expatriate class o f mine-owners, large
farm ers or plantation-owners to represent colonial exploitation in
a tangible way: only the invisible threads which tied the peasant
producers to the world m arket through the dom inant position of
the foreign trading companies.
THE GROWTH OF NATIONALISM

As nationalism began to take shape, the immediate goal of its
181
spokesmen seemed to be to take over the administration from the
expatriate civil servants whose superiority as a ruling bureaucracy
was based upon educational qualifications, and not upon the
ownership of property. Nevertheless, the political power which they
wielded ensured the prerogatives and privileges o f the European
firms who effectively controlled the ‘com m anding heights’ of the
economy. T he European business community, with its network of
relationships with powerful firms at home, form ed an exclusive
group which Nigerians could not penetrate. T he goals of its
members were short term , concerned as they were with the profits
of trading activities in a fluctuating m arket, and did not include the
long-term developm ent of Nigeria, least of all its industrialization.
Likewise, the expatriate civil servants, although renow ned for their
personal integrity, enjoyed high salaries and an enviable standard
of living as the fruits of office. They too had no conception o f the
state playing a positive role in the economy.
This form of colonial dependence, disseminating small benefits
to part of the ruled population, was consolidated between the wars
and reached its zenith in the 1940s when Nigerian production was
geared to the war effort o f the United Kingdom. T he main m edium
for the economic organization of prim ary production was the four
M arketing Boards set up to control the trade in each of the main
export commodities. T he Boards were granted the exclusive right
to buy up and m arket these commodities; they determ ined the
prices actually paid to the peasant-producers and sold them at world
m arket prices. T he difference between these two prices, in a world
hungry for supplies, was considerable and gave the Boards disposal
o f large revenues. D uring the war these proceeds were invested in
Britain, thus helping to finance the cost o f the war at the expense of
the Nigerian producers who had no say in the m atter. Subsequently
these revenues became a valuable prize and a source of finance for
internal development, representing as they did the main surplus
generated by the Nigerian economy and available for investment
apart from the profits of the foreign trading companies. T he main
difference, of course, between these sources of funds derives from
the fact that the M arketing Boards were governm ent bodies.
D uring the early post-war years, when prim ary product prices
rem ained strong, the accumulated reserves and current earnings
of the four M arketing Boards reached a high level. T he proportion
of income withheld from the direct producers am ounted to 42 per
cent in the case o f cotton, 40 per cent for groundnuts and 39 per cent
for cocoa. In 1954 the M arketing Boards were reorganized in line
182
with the division of the country into three regions; about the same
time as prim ary-product prices began to show a declining tendency
and the terms of trade turned against prim ary producers. These
changes were significant since the regional boards played a role
in the regional rivalries which began to plague Nigerian politics as
the country approached independence. Moreover, with economic
developm ent now becoming a prim ary objective, a m ore conscious
use was m ade of the Boards’ surpluses for this purpose. Although
part was used for research and developm ent in connection with
the production of the commodities controlled by the Boards, an
increasing proportion o f their funds was channelled into general
purposes through loans and grants to the regional governments,
for road-building, university expansion and other projects. Part
found its way to the financing of private enterprise through the
banking system or through loans and share purchases benefiting
private concerns.
Until 1954 British colonial policy in Nigeria had rem ained
basically unchanged. D uring the 1950s, however, the winds of
change began to blow around the African continent. T he growth
of the nationalist m ovement in Nigeria and increasing international
pressure to prom ote developm ent (however conceived) in the
colonies, compelled the administration to consider internal devel
opm ent m ore positively and to bring Nigerians into the process of
making decisions. It became clear that independence could only be
a m atter of time while, in this changing situation, the national bour
geoisie became increasingly self-conscious and politically organized.
In the Nigerian context the bourgeoisie had some specific features
which help to account for its subsequent behaviour. Coming as it
did from the ranks of the m ore prosperous peasantry, leading
families and small business people, it constituted an articulate elite
whose m em bers’ social status derived largely from the acquisition
of W estern education which was particularly highly prized as a
ladder of social advancem ent in the face of the expatriate rulers and
business community. Although nationalist in outlook, there were
also strong regional and ethnic loyalties and rivalries. Politically the
members of the national bourgeoisie were pragmatic and m oderate
and certainly not revolutionary. They generally retained a respect
for British education and the British way of life as exemplified by
the colonial civil servants and teachers. Desiring social im provem ent
and economic advance, for which they saw political independence as
a necessary first step, they tended to be suspicious of the^ powerful
foreign corporations which held sway over the Nigerian economy,
183
but they had no viable alternative in the short ru n to the continuance
of the existing organization o f trade and production.
Thus when independence was achieved Nigeria continued along
the capitalist road. Although phrases about ‘socialism’ figured in
political statements and speeches it was no m ore than populist
rhetoric, an expressed concern for improving the welfare of the
masses. It never took coherent shape as a serious program m e for
rem odelling the economy or prom oting industrialization under the
aegis of the state. T he members of the elite, as they took over the
levers of power, especially after full independence was achieved
in 1960, accepted the ethos of capitalism. Already privileged
economically and in the possession o f educational advantages,
they accepted personal advancem ent and enrichm ent as valid
goals, modelling their expectations very m uch upon the life-style o f
expatriate Europeans in colonial times. T he way was thus open for
cooperation and collusion between politicians and civil servants on
the one hand and indigenous entrepreneurs, o f whom there was no
lack of aspirants, and foreign businessmen on the other. Peculation
and corruption became endemic in the new state, intertwined with
regional and ethnic rivalries and favouritism which were to plague
the country, bringing instability and a tragic war within less than a
decade.
Meanwhile, there was some quickening of the pace of economic
change in Nigeria in the 1950s, attributable in part to the shift
in governm ent policy. By the 1954 Constitution, m ore power was
given to the regions, and the reorganization o f the M arketing
Boards gave them comm and over substantial financial resources for
development. As Nigerians took comm and of regional governm ent
they declared their intention to prom ote developm ent and diversify
the economy. However, there was no clearly determ ined strategy at
either the national or the regional levels. Despite higher governm ent
outlays and the verbal adherence to developm ent goals, the main
reliance was upon encouraging private enterprise which meant, in
practice, foreign capital. Although the nationalists were committed
to Nigerianization (or indigenization as it was generally to be called)
of the economy, as well as of the governm ent, this desire was
tem pered by the belief that Nigerians would be unable to provide
the capital, the entrepreneurial and m anagerial abilities or the
technical skill to enable them to take the places held by foreigners in
business. All that could be done until new economic cadres had been
trained or arose spontaneously, was to encourage local businessmen
wherever possible and to set up public corporations under national
184
control where foreign capital was not forthcoming.
By the 1950s, under the influence of United Nations agencies and
world economic and political opinion, it was becoming accepted that
if developing countries like Nigeria were to raise their income levels
and reduce their dependence upon prim ary production they would
have to industrialize. How this was to take place rem ained an open
question, but Nigeria already seemed set upon the capitalist road,
which m eant im port-substitution industrialization with foreign
capital playing a leading if not dom inant role. A fter independence
in 1960, as before, E uropean business firms continued to play a
crucial role in economic decision-making through their control
of the export-im port trade and their contacts with the advanced
capitalist countries. Indeed, already in the 1950s the extra-territorial
companies began to finance some im port-substitution industrial
projects in which they had formerly been uninterested. They
adapted both to a changing climate and to the growth of new
business opportunities presented by an expanding home market.
T he shifting o f responsibility for industrialization to the regional
governm ents also helped to speed up the setting up o f new
industrial plants. T he industrial base was small to begin with and
its expansion can be seen as a response to the overall growth of
the nation’s income for which exports of prim ary products were
responsible. T he internal m arket for some sorts of consum er goods
such as textiles, apparel and processed food and drink was a growing
one, large enough to w arrant home production. In addition there
was a growing dem and for industrial materials such as cement. So
far as these new industries required the application of advanced
technology and large-scale production foreign capital took the lead.
Independence m ade little difference to an already established trend,
except perhaps to speed up the relative decline of British influence
in Nigerian trade and investment.
From an admittedly narrow base, there was a 25-fold increase
in the output of m anufacturing plants employing m ore than ten
persons between 1950 and 1964. Production in small-scale and
artisan-type enterprises also probably rose quite rapidly. T he
industrial structure which was em erging was extremely diversified
both in terms of scale and product; it reflected the fragm ented
nature of the m arket in a society of great diversity in which ‘tradi
tional’ and advanced capitalist elements coexisted. Again, as would
be expected, m odern industrial plants were mainly concentrated
in a few areas where supplies of labour and raw materials were
available and where there was a local market. T he m odern sector
185
was overwhelmingly dependent upon foreign capital and enterprise
or governm ent support. T he im port-substitution character of this
first stage of industrialization was quite pronounced.
T he foreign trading companies, including the largest of them,
the United Africa Company, moved into the industrial sector on a
growing scale from the mid-1950s, at the same time they took the
lead in m odernizing retail trade and distribution. In some m easure
they moved from im porting goods to m anufacturing them on the
spot. T heir objective was clearly not to speed up industrialization per
se but rather to take advantage of the new investment opportunities
provided by the growing home m arket and probably to forestall a
loss of markets to other potential entrants, foreign or Nigerian,
into the m anufacturing field. At about the same time, a num ber of
MNCs began to set up branch plants in Nigeria for the same reasons
instead of sending finished goods. Some foreign or indigenous
entrepreneurs also m ade investments in m anufacturing industry.
O n the whole, however, the m odern consum er and interm ediate
goods sectors rem ained under foreign control or influence,
Nigerian capital being mainly confined to small-scale industry at
this stage. T he indigenization policy had very limited success leading
to token holdings of shares by Nigerians or employment only in
subordinate positions. Nigerian capital flowed into other outlets.
Public enterprises run by Nigerians also perform ed indifferently so
that, overall, local capital and entrepreneurs m ade little contribution
to industrialization.
NATIONAL PLANNING
As would be expected, the state began to play an enhanced role

in Nigerian development, especially after independence. As early
as 1946, the colonial adm inistration had initiated what was called
the T en Year Development and W elfare Program me. Although
not properly speaking an economic plan it was the first sign of
a shift towards developm ent goals. Governm ent initiative was still
limited to the public sector and welfare schemes, anything directly
connected with industrialization being regarded as within the
province of private enterprise. With the approach o f independence,
industrialization was seen by the nationalist politicians as both
necessary and desirable to strengthen the national economy and
raise living standards. Foreign economists were called in to give
186
advice; committed to free-m arket solutions adapted to the special
conditions of countries like Nigeria they saw industrialization as
coming through the extension of capitalist m ethods and the encour
agem ent of entrepreneurial initiative. T he object of ‘planning’ as
they saw it, and as it was accepted by the new rulers of Nigeria
after 1960, was not to extend the activities of the state but to keep
them within fairly well-defined bounds so that m arket forces could
operate m ore successfully. Planning could prom ote improvements
in the infrastructure, provide education and public services and
help train farm ers and businessmen but not be a substitute for the
private capitalist. This attitude was not m ore than an updated and
more sophisticated version of the nightwatchman attitude of the
state in colonial days. However, since the Nigerian elite could not
itself project a viable alternative it accepted the broad lines of this
advice, as shown in the First National Development Plan for the
period 1962—68. This Plan, and its successors, was not designed to
change the social order but rather to enable the existing system to
function m ore efficiently. Fitting in with what m arket forces were
shaping independently, the Plan saw industrialization as proceeding
on im port-substitution lines, or as being concerned with the proces
sing of locally-produced materials designed mainly for export. As
success was to be m easured mainly in the rate of industrial growth,
in the short ru n this was perhaps an obvious course to pursue.
While giving priority to industrialization the Development Plans
accepted the need for an economy of a mixed type, with the state
supplem enting and supporting m arket capitalism, rather than
superseding it. T he industrial sphere m arked out for it involved the
construction of large-scale plants, such as an iron and steel works
and an oil refinery, which private enterprise was unable or unwilling
to finance, and the operation of a num ber of smaller concerns.
For the rest, the state was to offer incentives to private capital
with a battery of measures: heavy depreciation allowances and
other tax exemptions, low tariff rates on im ported machinery and
raw materials, and various financial advantages. While the country
was divided into three regions, the revenues of the now regional
M arketing Boards became available for financing developm ent
projects whether in the public or private sectors. However, rivalry
between the regions m ade coordination difficult and corruption on
the part of higher civil servants, as well as of politicians, became a
serious problem. Factors of this kind militated against the carrying
out of a coherent long-term developmental program m e, apd made
for waste and inefficiency. These were am ong the growing pains
187
o f a new country experim enting with a parliam entary form of
governm ent and still heavily m arked by its colonial past. Meanwhile
growing struggles over the spoils of office and bitter ethnic rivalries
erupted into bloodshed and turmoil: the pogroms against the Igbos
in areas where they were an im m igrant group, the unsuccessful
attem pt at secession by the Eastern Region (Biafra) so costly in
hum an lives, military coups and dictatorship until 1979, and again
after 1984.
These unhelpful political conditions provide the background
for Nigeria’s mediocre economic perform ance in the 1960s and
early 1970s. It was a perform ance which certainly fell short of
expectations. T he annual growth rate, while over 4 per cent per
annum , was below that for developing countries as a whole. Growth
continued to depend principally upon foreign dem and for the main
exports. H ere Nigeria was comparatively fortunate even before oil
revenues began to flow in on a large scale (from about 1970) since
it had a steady source of income accruing mainly as revenues to
the governm ent and the M arketing Boards. T he export-orientated
nature of the economy enabled foreign capital to consolidate its
position during this period. Meanwhile, the belief inside and outside
the country that perform ance should have been better, focused
attention on particular short-comings in governm ent policy the
quality of entrepreneurship, the lack of capital, or the influence of
the MNCs. Often these were m ore in the nature o f symptoms than
of causes, and to be expected, given Nigeria’s history and structure.
In any case, the kind o f ‘planning’ pursued failed to capture popular
imagination. Adherence to a m arkedly capitalist road gave free rein
to the pursuit of individual goals and opened the way for illicit
dealings and corruption. T here was a lack of inspiring leadership
or of social or national aims; military dictatorship filled the vacuum.
THE GROWTH OF INDUSTRIALIZATION
Nevertheless, in a quantitative sense, industrialization was taking

place. Industrial output grew at an annual average of 10.3 per
cent between 1963-64 and 1973-74, while industry’s contribution
to GNP rose from 5.4 per cent to 7.8 per cent over the same period.
Industry’s share of national output thus rem ained modest. Per capi
ta growth rates (difficult to calculate because o f uncertainties about
Nigeria’s population size) were also disappointing. Consequently a
188
large part of the population experienced little or no im provem ent
in living standards, despite the apparent boom in some sectors and
parts o f the country, even after the oil boom got u nder way.
Characteristically, industrial growth took place mainly in the
established branches o f production, in the already industrializing
areas and in line with existing structures. Foreign capital retained
its dom inant position in the m odern sector of industry, indigenous
capital being m ore prom inent in the small-scale, artisan or tradi
tional type industries. T he main thrust o f the industrialization taking
place was still in the direction of import-substitution, encouraged by
the developm ent policies already outlined. Public investment was
confined mainly to improving the infrastructure or was directed into
large-scale, loss-making prestige projects. Innovative investments
and new technical developments came mainly from foreign-owned
businesses in the m odern sector. T he geographical distribution of
industry confirmed what was perceived to be an unbalanced and
excessive concentration in a few locations. Over half of total
m anufacturing production was carried on in Lagos state and
over one-third in greater Lagos. Lesser concentrations were to be
found in the towns of Kano, Kaduna, Port H arcourt and Ibadan.
Meanwhile, the continued growth of the m odern sector, including
the oil industry, and the building up of the infrastructure, took place
against the background of an economy which rem ained predom i
nantly agrarian, m ade up o f a majority of low-income peasant
households. Previous historical developm ent had incorporated the
agrarian sector into the m arket economy, linking part of it to the
world market.
At the same time, as in other countries at a similar stage in
their development, industrialization in Nigeria tended to create
a ‘dual economy’, though the two economies were by no means
separate. While not exactly an enclave, the m odern sector was, in a
sense, an off-shoot of the m ore advanced economies and rem ained
largely u nder foreign influence and control. Part was concerned
with exporting prim ary products, thus emphasizing Nigeria’s
continued dependence on the world m arket, part was concerned
with import-substitution. As in the case of other countries, however,
import-substitution did not itself guarantee greater economic inde
pendence.
In Nigeria, as in other developing countries, such as India and
Brazil, import-substitution industrialization was geared mainly to
the consuming power of the higher income receivers. It provided
commodities which supported the life-styles of the dom inant post
189
independence elites: the individualistic, prosperous and ambitious
10 or J5 per cent o f the population which had benefited most
from Nigeria’s foreign earnings and governm ent policies of
‘developm ent’. T he incomes of many of these people depended
upon political bargaining power, influence in governm ent circles,
illicit dealings and even corruption of officials and politicians. For
example, some top civil servants had business interests which they
used their official positions to promote. Salaries in governm ent
employment, especially for the top layers, were kept consistently at
a level which made possible a high standard of living. Nevertheless,
the Nigerian ruling class did not own or control the main means
of production, especially in the m odern industrial sector, and
rem ained a ju n io r partner in its dealings with foreign trading
companies and the MNCs.
INDIGENIZATION
It became clear during the 1960s that if m arket forces continued

to go unchecked, the sphere of operation o f all but a few local
capitalists would be confined to small-scale industry and petty trade.
Com m itment to free enterprise led to results which conflicted with
nationalist aims, leaving the main m anufacturing industries and
key businesses in foreign hands. Although from the beginning of
Nigeria’s existence as an independent state indigenization had been
a proclaimed policy, in practice it had been slow-moving during
the 1960s. More positive state action would be required to speed
it up, considering that as late as 1971, 58 per cent of industry was
still under foreign ownership. T he following year the governm ent
issued the Nigerian Enterprise Promotion Decree, the first of a
num ber of measures intended to redress the situation. U nder this
law some business activities were in the future reserved, wholly or
partly, for Nigerians and aliens were to be prevented from setting
up new firms (with the exception of some Africans o f other states).
Equity capital in foreign-owned firms was to be m ade available to
Nigerian nationals with state help and they were to be granted a
m ore im portant role in the making of decisions. In form ulating
the policy a compromise was sought between the desire for
indigenization, and the recognition that industry was dependent
upon foreign capital and personnel. At the same time the state
190
acquired, un d er this policy, a majority shareholding in such key
sectors as insurance, banking and the oil industry.
D uring the 1970s the indigenization policy ensured the tranfer
of large blocks of shares in foreign-owned businesses to Nigerian
citizens and institutions, and m ore Nigerians were appointed to
m anagem ent posts in industry. T he m ore energetic pursuit of
the policy by the military regime was hailed as a trium ph for
nationalism and earned it much popularity. However, practice fell
somewhat short of intentions. Dependence could not be ended by
decree and, within the context of a mixed economy, foreign capital
displayed considerable ingenuity in adapting itself to the new
conditions. T here was a lack of trained and experienced Nigerians
to fill m anagerial posts and, when appointed, they often perform ed
a token role, real power still rem aining with foreigners. Nigerian
entrepreneurs or executives might simply be the front men for
firms effectively controlled by foreign capital. As to participation
in equity capital, only a fortunate few with cash reserves or the
backing of bank loans were able to buy shares under the decrees.
Overall, therefore, the policy tended to consolidate the wealth and
privileges of the newly-emergent Nigerian capitalist class, while
social inequalities tended to widen. Indigenization during the 1970s,
despite its limitations, began to shift a larger m easure o f ownership,
control and m anagem ent of business into Nigerian hands. By itself
it could not increase the flow of dynamic entrepreneurs or able
administrators called for under the industrialization program m e
followed since the 1950s, nor could it reduce dependence upon
MNCs. Foreign private investment still rem ained the driving force in
the m ore advanced sectors of the economy and the regime could not
displace it without a radical change in economic strategy. Moreover,
with the oil price rises o f the 1970s the economy was swept along
in an upsurge of prosperity which m ade such a change unlikely in
the short run.
In reviewing the Nigerian case, it can be said to be an
example of a capitalist-type industrialization in a form er colonial
territory, dependent upon private foreign capital and taking the
lines o f import-substitution. T he newly independent state after
1960 inherited a one-sided economic structure determ ined by its
colonial dependence upon Britain and its role in the world m arket
as a prim ary-producing country. Long exposure to m arket forces
and the turning of part of the agrarian sector to production for
the m arket opened the way for a capitalist-type developm ept which
continued after Nigeria became an independent state. T he creation
191
o f an infrastructure designed to link cash-crop production to the
world rparket, together with the spread o f education, helped to
expand m arket opportunities and the supply o f people ready to
take advantage of them. W hen independence came, it represented
a peaceful transfer of power to an educated political elite, leaving
intact the production relations and the dom inance o f foreign capital,
characteristic o f Nigeria’s economic dependence.
W hen Nigeria joined the ranks o f the independent ‘developing
countries’ in 1960 it followed a policy which gave a determ ining role
to m arket forces despite the building up of the public sector. Such
a policy placed a wager on the emergence o f dynamic indigenous
entrepreneurs able eventually to take over economic leadership. To
begin with, however, the national bourgeoisie was weaker and less
m ature than its counterpart in some other countries, such as India,
though stronger and better able to take over the reins of power
than in most other Black African states. Divisions on regional and
ethnic lines constituted a serious handicap to the form ulation and
pursuit of strong national goals. Despite the desire o f the elite
to take over full economic m anagem ent and control, it had to
accept the dom inance o f external trade by foreign firms and
dependence upon private foreign capital to begin industrialization.
Im port-substitution did not break the ties of dependence, requiring
as it did larger imports o f machinery and interm ediate products as
well as trained foreign personnel. While continuing to pursue the
capitalist road, the governm ent pressed the policy of indigenization,
with mixed results.
T hroughout this period Nigeria was fortunate in that its prim ary
export staples were in relatively strong dem and. Funds provided
through the M arketing Boards, representing the surplus extracted
from peasant producers, were thus available to finance developm ent
projects and provide a foreign exchange reserve to cushion against
external shocks. Nigeria thus escaped some of the acute problems
facing most ‘developing countries’ in the 1950s and 1960s, subse
quently joining the fortunate ranks o f the oil-producing countries.
As the country’s vast reserves of petroleum came on stream, and
prices soared, Nigeria’s economic fortunes took a tu rn for the better.
Oil revenues did not break Nigeria’s ties of dependence to
the world market; indeed they strengthened them. Prosperity, as
far as it went, still depended upon exports, and extraction and
m arketing were wholly or partly in the hands o f powerful MNCs.
Moreover, in the euphoria generated by oil wealth ambitious
long-term projects were put in hand which depended upon foreign
192
financing and technical assistance. T he new flow of income fuelled
inflation, provoked shortages and placed enorm ous strain on over
worked public services and infrastructure. Financial blessings were
unevenly spread, and existing social inequalities became still m ore
blatant. Unem ploym ent rem ained a pressing problem and over
m uch of the country average per capita incomes rem ained no higher
than in less fortunate African countries.
Despite the role of oil in the economy and the attem pt at import-
substitution industrialization, Nigeria is still a predom inantly
agrarian country. Agriculture remains the principal occupation
o f some three-quarters of the population. Nevertheless, extensive
areas o f cultivable land rem ain unused (some estimates put it as
high as 90 per cent) while population continues to increase at the
rate of 3 per cent per annum and food imports rise. T here are
several reasons for this state of affairs. Agriculture emphasizes
cash crops for exports, while in the subsistence sector productivity
is low and little has been done in the past to encourage the small
peasant producer to improve m ethods of cultivation. Clearly in
present-day Nigeria it is oil, not agriculture, which generates the
surplus for capital investment in industry. In that respect the
country is fortunate but if the economy is to be placed on a healthy
long term footing greater resources will have to be channelled into
agriculture. T he Fourth Plan (for 1981-1985) allocated 13 per cent
of investment resources to agriculture and there is belated talk of
the need for a green revolution, with the object o f making the
country self-sufficient in foodstuffs within five years. T hough the
resources exist to make this possible, the will may be lacking. T he
tendency is for the younger m en to leave the rural areas leaving
behind the problem of how a low-productivity peasant agriculture
can be m odernized through m arket incentives and village life
be m ade m ore attractive. T he agrarian problem presents itself
differently in Nigeria than in many other developing countries; its
serious long-term nature was concealed by the oil revenues which
enabled increasing imports to be paid for. W ithout an attack on rural
poverty, underem ploym ent and low productivity during the 1980s
prospects for fu rth er industrialization could be jeopardized by the
lack of a mass domestic market: poor peasants cannot buy industrial
goods.
T he ending o f the oil boom left Nigeria with a debt problem
and an ambitious plan for industrialization which could not be
sustained. Despite its limited absolute scale, accounting for about 8
per cent of national product, the degree o f industrialization remains
193
impressive com pared with that of other Black African countries. But
since Nigeria is such a large country, with a variety of geographical
and climatic regions, its economy has not been so excessively
‘m onocultural’, in the sense of dependence upon a single staple, as
many other developing countries in Africa or Latin America. The
indigenization policy, despite its vicissitudes, suggests a desire on
the part of Nigerians to be masters in their own house. Nigeria is
far from being an industrial country and the aim of self-reliance has
received a setback from the collapse of oil revenues. Either way it is
difficult to avoid dependence upon foreign capital and technology.
Industry has not been able to develop the large actual or potential
home m arket and other advantages as m uch as m ight have been
expected. T he limitations of im port-substitution industrialization
in a country like Nigeria have become m ore manifest. T he
governing force in economic growth has still been the export
trade as shown by the disastrous consequences of the fall in oil
revenues. Subsequently, there has been a search for alternative
sources of foreign earnings, complicated now by the existence of
a large external debt. It is possible that in the coming decade oil
prices will rise again, but it would be unwise to count upon such
a deus ex machina to solve Nigeria’s problems. Im port-substitution
industrialization has m eant growing dependence upon interm ediate
goods and plant, while m uch local industry concentrates upon the
production of high cost or inferior goods behind tariff walls, the
consumers of which belong mainly to the upper-incom e brackets.
T he really mass m arket required for sustained industrialization still
seems a long way off and the harnessing of the surplus for large-
scale industrial investment, requiring wider powers for the public
sector, has not been tackled. T he attem pt to switch some capacity
to export-orientated industrialization has not been a great success
and has chiefly consisted of processing locally-produced materials.
It is clear, in any case that expansion in fields such as petro-chemicals
and fertilizers will have to depend m ore upon governm ent support
than upon m arket forces. Nigeria has not been able to build up
industries able to win a place in the world m arket after the model
of some Asian countries.
Booming oil revenues in the late 1970s and early 1980s encour
aged the federal governm ent to embark upon ambitious projects
financed by foreign borrowing. T here was massive investment in
the petro-chemical industry, a steel industry was established and
many governm ent-financed or joint-venture firms were set up.
T he aim was faster industrialization on im port-substitution lines,
194
moving into the production of interm ediate goods such as steel and
chemicals. Foreign firms were encouraged to set up assembly plants
for cars, trucks and tractors on the assumption that the proportion
o f locally-made components would steadily increase. This policy
m ade possible a rapid rate of growth but it was flawed in several
respects. T here was a shortage o f trained and skilled labour, the
new industries required heavy tariff protection, their products were
expensive and of dubious quality and the product-m ix reflected the
skewed income-distribution, while dependence upon the MNCs was
not reduced. Some of these problems m ight have been tackled had it
not been for the slump in oil revenues. Nigeria was now confronted
with interest payment on a swollen foreign debt coupled with a sharp
fall in revenue. T he problem was complicated still further by the
slow-down in world economic growth in the early 1980s.
A fter a brief retu rn to civilian rule which lasted from 1979 to
1984, the military again took control, in inauspicious circumstances.
By 1987 oil revenues were little m ore than a quarter of what they
had been in 1980. T he gross domestic product per capita was down
from 405 naire in 1977 (the peak year) to 240 naire in 1987. T he
governm ent had to seek ways of re-scheduling the external debt
while being encouraged by the W orld Bank and the International
M onetary Fund to modify or abandon past policies towards industry
in line with the current mode of liberalization. To deal with the crisis
the Structural Adjustm ent Program m e was introduced in Septem
ber 1986 and the Fifth National Development Plan was shelved.
T he aim was to restore international confidence by dealing with
price distortions and inflation, imposing austerity and channelling
m ore resources into agriculture. Meanwhile, in contrast with the
euphoria of the years of the oil boom, workers and many members
of the middle class experienced a reduction in purchasing power
which limited the dem and for the products of local industry. It was
clear that many of the projects earlier put in hand were no longer
viable. Meanwhile, responding to outside pressures, the governm ent
announced a m ajor privatization program m e which involved the full
or partial sell-off of most state-owned companies. T he current was
running strongly in favour of increasing the scope for free m arket
forces.
It remains to be seen w hether these policies, as they work
themselves out, will give rise to a m ore balanced developm ent
or to furth er distortions. In the short ru n they have aggravated
unem ploym ent and rural poverty. T he main aim has been
to restore the credit-worthiness of the economy and avert a
195
catastrophe. T he collapse o f the oil boom at least revealed that
the industrialization which had been carried out had not been
financed by the mobilization o f internal reserves but by the sale
o f a wasting natural asset. T he period o f easy oil money saw the
intensification of social differences and increased opportunities for
peculation and personal enrichm ent. T he building up o f a large
public sector within the existing social and political set-up had as its
counterpart greater opportunities for favouritism, corruption and
political interference in economic m anagem ent, inefficiency and
even greater dependence upon foreign credits. While on the face
of it the oil boom had activated some m easure of industrialization,
the lessons from Nigerian experience may be m ore negative than
positive. T he easy borrowing of the 1970s and early 1980s was used
not to prom ote balanced growth, including the m odernization of
agriculture and the traditional sectors, but to finance extravagant
and grandiose projects, wasteful governm ent expenditure and
corruption. W hen it came to an end, Nigeria had nothing to fall
back upon. T he fall of the civilian governm ent was greeted with
popular enthusiasm, but its military successors, confronted with
a crisis situation, soon em barked upon an austerity program m e
which sparked discontent. It remains to be seen w hether the new
regim e’s espousal o f liberalization and privatization at the behest
of the International M onetary Fund and the W orld Bank will solve
Nigeria’s problems.
T he extent of industrialization and economic developm ent so far
has not basically changed the structure o f the Nigerian economy
or its relationship to the world market. It remains a raw material
exporting country, though the main export is now oil which, despite
the fall in price, earns over 90 per cent o f the country’s foreign
exchange and provides over 70 per cent of the revenue of the
federal governm ent. Its dependence upon foreign capital has been
emphasized by having to re-schedule its debts, short as well as long
term , in o rder to be able to obtain fu rth er credits. It is no longer
as attractive to foreign investors or to m ultinational corporations
as it once was. T he kind of industrialization which will be possible
in the future will depend to a considerable extent upon external
constraints. In the short run it is likely to depend upon a continued
inflow of capital and technology, but industry is at present (1988)
running well below capacity because o f the shrinkage o f the domestic
market. Unfortunately m uch o f Nigerian industry has acquired a
bad name for inefficiency, high-cost production and poor quality.
It is not likely, therefore, that the MNCs will see Nigeria as a likely
196
export platform , even for other African markets. In fact, it may
have to be adm itted that much o f previous industrialization was
on the wrong track, that a forced m arch to m odern industry is not
possible along the lines being pursued in the 1970s. On the other
hand, m ore attention will have to be paid to food production;
population is increasing steadily and is now estimated to be 105
million. If incomes are to be raised (or even restored to their 1970s
level) and living standards improved, the country’s resources will
have to be mobilized for some form of industrialization, not only
to bring about authentic development, but to avert disaster.
197
CHAPTER 8
Industrialization in the
‘developing’ countries
In the closing decade of the twentieth century, the poverty and

stagnation of m uch of the non-W estern world is bound to be a major
international political issue if only because the areas concerned are
likely to become centres of disturbance and revolution. Neverthe
less, forms of industrialization have been spreading to a variety of
countries somewhat euphemistically described as ‘developing’ or
‘newly-industrializing’. This developm ent has been characterized by
its extrem e unevenness; while the m anufactured products of some
of these countries have been playing a m ajor role in world trade,
their income levels rem ain low and prim ary production remains
their predom inant economic activity. T he extremely rapid growth
in the output o f a few countries such as Brazil, Mexico or South
Korea has to be set against the stagnation or slow growth which
prevails in many others.
W hat has been rem arkable, however, is that there has been an
increasing flow of m anufactured goods into the markets of the older
industrial countries from these ‘newly-industrializing’ countries. In
the intensified trade competition which has been going on since
the early 1970s this has caused some concern and a protectionist
reaction threatens. On the other hand, there is a wide agreem ent
that without some degree of industrialization there is no possibility
of the poorer countries raising their income levels.
T he situation is obviously a complex one. Much of the
industrialization which has been taking place in the non-W estern
world has not been a response to an expanding internal market.
It has differed in fundam ental respects (except in the case of
Brazil) from the models examined in earlier chapters, whether
undertaken in accordance with m arket forces or some form of
198
Industrialization in the ‘developing’ countries
planning. Controlled or stimulated by the great MNCs, this kind
of industrialization in the ‘developing’ countries has not been the
start of rounded and self-reliant economic developm ent and social
improvement. It has only brought higher living standards for a
fortunate minority and, in general, has m ade no inroads into the
secular stagnation of still predom inantly agrarian and und erd e
veloped, dependent, countries. To explain how this has come about
it is necessary to make a brief excursion into the historical origins
of present-day underdevelopm ent.
ORIGINS OF UNDERDEVELOPMENT
T he industrialization first of Britain and then of the other

advanced countries of W estern Europe and N orth America in the
nineteenth century would not have been possible without bringing
into existence a world division of labour in which most other areas
of the world were turned into sources of prim ary products. This
was the case w hether the countries concerned rem ained politically
independent, became spheres of influence, or were turned into
colonies. T heir economies were shaped to the needs of the advanced
industrial and consuming countries of the W estern World. In that
sense they rem ained underdeveloped as prim ary producers with
little or no m odern industry, low per capita incomes and little
growth outside the prim ary-producing sector. Taking the world
as a whole, m anufacturing industry was concentrated in a few
geographical zones, with only odd outposts scattered elsewhere.
These industrial areas could call on the resources of the less
developed and dependent areas for their supplies of raw materials
and foodstuffs and in addition to this could export m anufactured
goods to them. T he success of industrialization, once established,
depended upon insertion into this pattern. At one time it seemed
that Japan constituted the last great success story, but in recent
decades other countries, especially in East Asia, have been trying to
follow her example. On the other hand, as has been seen, neither
India nor China were able to emulate Japan, a m ajor reason for this
being their political and economic dependence upon the W estern
imperialist countries.
T he international division of labour which grew up as a result
o f E uropean (and later American and Japanese) industrialization
appeared to contem poraries in the nineteenth century to be part
199
of the natural ord er o f things. Some countries apparently were
destined] to be workshops of the world, others had to accept
the lowlier role of hewers o f wood and drawers o f water.
European latecomers, such as Germany, had, o f course, rejected
this implication o f free trade doctrine, as far as their economies
were concerned, and had adopted protectionist policies to assist the
early stages o f their industrial growth. Japan had pursued the same
course in its own way. As a result, they joined the dom inant group o f
powers in the world market. Most countries were unable to follow
their example, though protective tariffs were included am ong the
dem ands of nationalists in colonies such as India. As a consequence
of their weakness they were incorporated into the world m arket
in a dependent relationship, often being annexed politically by
the imperialist powers or being incorporated informally into their
economic empires. Investm ent by the capital-rich countries built
up an infrastructure in those parts of the world which held out
promise as sources o f raw materials and foodstuffs and as markets
for m anufactured goods. As in the case of India or Brazil, such
investment did little to prom ote industrial developm ent but merely
increased their dependence and one-sided economic relationship to
the world market. In the now fashionable terminology, they form ed
the periphery, while the advanced m etropolitan countries m ade up
the core.
Classical economic theory provided powerful ideological support
for this division o f the world into m anufacturing and primary-
producing countries, through the elaboration of the law of
comparative costs. According to this so-called law, all trading p art
ners would benefit most if each concentrated on the production of
those commodities for exchange in which it had a relative advantage.
This doctrine was by nature static; it did not allow for developm ent
and technological change and overlooked the unevenness o f devel
opm ent between countries and regions. Its practical application
offered great advantages to the industrializing countries o f the
nineteenth century, providing them with a theoretical and moral
justification for what they were doing on a world scale: opening
up the resources o f dependent countries on the most favourable
terms, while their own economies were becoming highly specialized
as industrial producers, taking advantage of scale economies and
enjoying other benefits. At the same time, world trade was controlled
by m erchant and financial capital in the advanced countries; this
enabled the prices o f prim ary products to be kept down while
m anufactured goods could be sold on the most favourable terms.
200
Industrialization in the ‘developing9countries
T he pattern o f the world trade was m ade up principally o f exchange
between the advanced countries on the one hand, and between them
and the prim ary producers on the other; the latter did little trade
am ong themselves.
T he result of the international specialization which grew up in
the nineteenth century was, first of all, to make possible the plunder
o f natural resources in the dependent areas o f the globe with little
benefit in the shape of local developm ent - a process which is still
going on. Secondly, in other cases, it riveted the cultivation o f one
or two cash crops onto many parts of the world, taking advantage o f
local conditions, such as climate, soil and labour supply (which was,
if necessary, brought in from outside). Existing economic and social
structures were underm ined or destroyed. Incomes became highly
dependent upon fluctations in world prices with devastating effects
when they fell sharply, as during the world economic depression
of the 1930s. Thirdly, since the productivity o f labour is generally
lower in prim ary production than in industry, there was only limited
scope for raising incomes, which rem ained, on average, at a very
low level. Fourthly, the production and export of staples, especially
un d er colonial conditions, had only limited linkage effects on the
rest of the economy and generally failed to initiate economic growth.
These conditions explain why the prim ary-producing countries
rem ained or became underdeveloped as a result o f being dragged
into the capitalist world m arket. Generally speaking, the mass of
the population rem ained poor and, in some cases, the destruction
of traditional forms of economy m ight result in them becoming
worse off. In the agrarian sector, landlordism, peonage, chronic
debt and other forms of exploitation of the peasantry prevailed.
T here was little interest either on the part o f foreign capital or of
local capitalists, when they appeared, in establishing m anufacturing
industry. T he needs o f the richer classes would be m et by imports
and, although the hom e m arket rem ained constricted, it also
tended to be dom inated by cheap m anufactures from the advanced
countries (the Indian m arket for Lancashire cottons being a classic
case).
In the latter part of the nineteenth century, however, some
m anufacturing industry did begin to appear in India and even
in China; nevertheless, the handicaps to the building up of local
industry were usually considerable in most parts o f the colonial
and semi-colonial world until the First W orld War, and in most
places until m uch later. Perhaps surprisingly at first sighi, despite
the existence of cheap raw materials in some cases, and of supplies
201
of labour power in others, capital did not readily flow into industry.
For locajl capitalists, trade, and perhaps investment in land, usually
offered greater profits. They were m ore likely to handle im ported
m anufactured goods than to invest in production. W here they did
seek to invest in industry, as in the Indian cotton m anufacture, they
had to m eet with the difficulties imposed by the colonial rulers,
notably in refusing to impose a tariff on im ported goods. W here
industrialization did begin it took the form of im port substitution,
as in the case of Brazil. As for foreign capital, it rarely went into
m anufacturing industry in the colonial or dependent countries.
Reluctance to compete with home-based industry may have been a
deterrent; but the main reason must have been that other outlets
for capital offered greater expectations of profit, mainly in the
prim ary-producing sector or in related activities such as railways
and shipping.
Continued technological change in the advanced industrial coun
tries in the twentieth century brought fu rth er economies of scale
and raised labour productivity. T he new science-based industries in
particular needed the support of a whole complex of facilities which
did not exist at all, or only partially, in the underdeveloped countries
and which were the product of a long historical process. Essentially
this m eant the existence of capitalist relations of production:
profit-seeking firms (entrepreneurs), available capital, technological
skill, a varied labour supply with the necessary range o f skills, and
a society long adapted to the needs of industrial capitalism, geared
to the pursuit of material success. Some countries, or at least regions
of them, were moving along this road, but it was a very uneven and
quite protracted process. Moreover, it tended to be obstructed by
the interests tied up with prim ary production and, perhaps, by the
colonial rulers. While in the eighteenth and nineteenth centuries the
industrializing countries had gained from their trading and other
relations with the underdeveloped countries in the international
division of labour, now the new industrializers were generally in
an unfavourable position. They still depended a good deal upon
the sale of prim ary products, their internal markets were limited,
they lacked capital for industrial investment, as well as potential
entrepreneurs, skilled labour and an adequate infrastructure.
At the same time, many parts o f the world were being brought into
contact with m odern economic institutions and business practices as
a result of their participation in the international division of labour.
T here were mines, plantations, banks, production of cash crops,
organized markets, m erchant houses, railways, m odern ports and
202
even some industrial enclaves (as in Bombay, Calcutta and the
Chinese treaty ports) and thus a certain spread of capitalist relations.
Pre-existing forms of economy were being underm ined, especially
by the commercialization of agriculture, the establishment o f private
property in land, and the recruitm ent of wage-labour for work in
mines, plantations and, on a limited scale, in industry. In some cases
(India and China again) there was the growth of a local capitalist
class, some in a compradore relationship with foreign interest, others
beginning to strike out on their own. T here were signs, therefore,
that some parts of the underdeveloped world, even before the First
W orld War, were entering a ‘pre-industrial’ stage and would move
m ore or less automatically on to industrialization.
M O D E R N D IS A D V A N T A G E S
Such a conclusion would, however, be mistaken. T he position

of these countries in relation to the world m arket still rem ained
fundam entally different from that of the advanced countries on the
eve of their industrialization. W hen the latter began to industrialize
they were already the most advanced countries economically, they
were already dom inant commercially over the rest of the world.
T heir industrialization took place as the response of the owners
of productive capital to m arket forces un d er especially favourable
conditions. They led the way in applying new technologies and
forms o f organization to increase the productivity o f labour in some
of the m ore significant fields (e.g. spinning and weaving of textiles,
and production o f metals and machinery) in a revolutionary way.
It was this which enabled them to grow, expand and dom inate
the world m arket — a m arket brought into being in a specific
form which satisfied the imperative needs of growing industry
both for raw materials and for markets. By the time that
the underdeveloped countries, or rather their governm ents or
businessmen, began to contem plate industrialization, their position
in relation to the world m arket was about as unfavourable as that
o f the present-day advanced countries had been favourable when
their industrialization began.
U nderdevelopm ent has thus been an historical process generated
through the relationship of the dependent countries to the world
m arket, dom inated by the earlier industrialized imperialist coun
tries. This relationship was an unequal and one-sided one. Only
203
those parts o f the economies o f the underdeveloped countries which
supplied prim ary products to the world m arket had been activated
by capital investment. Even where a local capitalist class had come
into existence and was seeking to invest in m anufacturing industry,
this usually took the form o f im port-substitution and was, in any
case, unable to initiate a process o f industrialization comparable with
that of the advanced countries. India again is a good example, and
one in which, by the late nineteenth century, a nationalist movement
had arisen with industrialization as one of its aims.
T he reason why industrialization had m ade little headway in
the underdeveloped countries before the Second W orld W ar can
be briefly explained as follows: they were unable to make the
necessary changes in social relations, to accumulate capital on a
sufficient scale, form a disciplined industrial proletariat, command
a large enough m arket at hom e and abroad, or to build an adequate
infrastructure. A slow developm ent o f industry where possible m ade
little difference. In most fields o f industry, particularly the newer
ones, all the advantages seemed to be held by the leader countries.
They had a considerable technological advance, they produced on a
large scale, and possessed m anagem ent and m arketing skills. Entry
to many industries necessary for the establishment of an industrial
base, such as steel, could only take place on the basis of relatively
large investments and associated risks that local capital was unable
to undertake. To establish m odern plants, even in light industries,
capable of making use o f scale economies, necessitated dependence
upon a large m arket and thus m eant breaking into the world market.
Japan had successfully done this, but at a time when technology was
less complex and when factories could be established with smaller
outlays than was the case later in the twentieth century. It had
become m ore difficult for countries to follow the Japanese path.
Successful industrialization would probably have to find some other
route.
D E V E L O P M E N T S A F T E R T H E F IR S T W O R L D W A R
As a result o f the dislocation o f the world economy brought about

by the First W orld War, some new factors entered the scene. T he
cutting off o f exports from the industrial countries engaged in the
conflict as well as the needs o f war, encouraged m anufacturing in
the less-developed countries. This took the form partly o f import-
substitution, and partly o f production for the war effort. More local
204
capital was attracted into m anufacturing in India, Brazil and other
Latin American countries, for example. T he nationalist movements
gained ground in the colonial and semi-colonial countries and usual
ly had industrialization am ong their aims, even if the term itself was
not yet used. T he Bolshevik Revolution o f 1917 broke up the unity
of the world m arket and later, through the Five-Year Plans, offered
an alternative model for the industrialization o f underdeveloped
countries to that o f the advanced capitalist countries. Conditions
for the prim ary-producing countries rem ained difficult through the
1920s and deteriorated dramatically with the collapse o f prices after
1930. T he terms o f trade worsened since the prices o f m anufactured
goods fell less, making their im port m ore expensive in terms of
local products. T here was, therefore, a greater incentive to set up
local industries on the basis o f import-substitution, which launched
a num ber o f countries, such as Brazil, into a partial industrialization.
T ariff walls were erected to encourage such industrialization which
became linked with nationalism. T he im port-substitution industries
were not necessarily low-cost, and the plant and equipm ent for
them had largely to be im ported, thus the degree of economic
independence they perm itted was limited. Moreover, where new
industries were im planted they tended to rem ain enclaves o f m oder
nity in a general sea of backwardness, showing few indications that
they could become the instrum ents for a m ore general structural
transform ation. Instead they tended to reinforce economic dualism.
D E V E L O P M E N T S A F T E R T H E SE C O N D W O R L D W A R
These trends were decisively reinforced by the Second W orld War

and its worldwide consequences, a m ore significant turning point
than either the First W orld W ar or the depression of the 1930s. T he
tendency towards im port-substitution was even m ore m arked, as was
the harnessing of many countries to the war effort of the Allies or,
in Asia, to that of the Japanese. Nationalist movements assumed an
irrepressible character in one country after another and the defeat
o f W estern countries by Jap an in 1942-43 speeded up the process
immeasurably. A fter the war, the old colonial empires were broken
up and many new states came into existence in their place. D uring
the war, and subsequently, people all over the world were brought
into direct contact with the products of American technology and
a new life-style. Labour employed on American bases was paid
205
hitherto undream ed of wages and dem and was created for such
commodities as cigarettes, chewing gum, Coca-cola, toothpaste and
canned or processed foods. Aspirations for other material attributes
of the American way of life were also stimulated. A fter the war,
US policy set about breaking up the old protectionist trading and
currency blocs (imperial preferences, the sterling area and the
franc zone) and the colonial empires o f the E uropean powers, with
a worldwide open-door policy. This could only m ean the m ore or
less rapid demise of the old empires, formal and informal, and the
hegemony of the dollar, backed up by the power o f US industry
which was said to account for no less than two-thirds of world
industrial production in the mid-1940s.
Simultaneously with the rise of the American super-power, the
forces of revolution gained ground, especially in Asia where United
States policy suffered some serious setbacks. In 1949 the nationalist
regime in China was swept away and the Communists came to power
led by Mao Tse-tung with a policy of planned industrialization. T he
following year saw the outbreak o f the Korean W ar which helped
raise the price of raw materials. T he onset of the Cold W ar in Europe
introduced a wholly new dimension into international economic as
well as political relations. As a result o f the new division of the world,
vast amounts of American military and economic aid were pum ped
into countries threatened by ‘comm unism ’ or regarded as bastions
against it. This favoured a num ber of newly-independent regimes,
able to prom ote plans for m ore rapid economic development. T he
prom otion of economic developm ent (often loosely regarded as
synonymous with industrialization) became the task of agencies of
the newly-founded United Nations and of such organizations as the
World Bank.
T here was now a coincidence of purpose between the em erging
nationalist elites, based upon the nascent bourgeoisie, such as it was,
in the countries already independent or achieving independence
after 1945, and the aims of the US and its allies. These countries
—form er colonies and semi-colonies —were prom oted to the status
o f ‘developing’ nations. T heir economies had to be strengthened to
prevent them from falling into the Soviet or Chinese orbit which, it
was believed, would close them to W estern business. While the new
rulers often carried on an anti-imperialist rhetoric and even spoke
of socialist aims (the Congress Party in India, for example) they
generally welcomed or sought foreign, mostly American, economic
aid and were ready to see foreign capitalist enterprises extend their
investment activity in their territories.
206
Meanwhile, a whole new field of study under the general title
of ‘developm ent economics’ came into existence, focusing on the
problems of stimulating growth in the new ‘developing’ countries,
with the assumption that this would help them overcome the results
of underdevelopm ent and lead to a rise in living standards for the
mass of the people. While the general consensus of W estern studies
was that industrialization should be prom oted to bring this about, it
was also assumed that, as far as possible, it should be done through
m arket forces. T he main prerequisite, therefore, was to assist in the
creation of an environm ent favourable to the operations of private
entrepreneurs, which ensured the prerogatives o f private property
and offered the freest possible field for the investment of private
capital. It had to be recognized that in conditions of relative back
wardness the state would have a positive role to play (this accorded
with the growing influence of Keynesian economics) not only in
creating this environm ent, but also in assisting with the creation of
necessary infrastructure, and in making its own rule proof against
internal (‘com m unist’) subversion or external attack. Economically,
however, the principal role o f the state was to prom ote the operation
of m arket forces. In the post-war years military aid flowed where
the dangers seemed greatest, for example, to South Korea, South
Vietnam and Taiwan. Economic aid was also dispensed somewhat
unequally and private foreign capital naturally followed lines of
expected profitable returns.
As a result of all these linked changes in the international
environm ent, new possibilities were created for the industrialization
of the less-developed countries of the world. T he Soviet Union
also supported such a goal, hoping to win over the new national
bourgeois governments. Gradually and unevenly, industries were
established in various countries which had hitherto been mainly,
or entirely, prim ary-producers. W hether or not the building of
factories and their employment of an increasing num ber of people
can properly be described as ‘industrialization’, is perhaps a debat
able point. Leaving aside the question of w hether it is justified in
particular cases, this industrialization took a num ber of different,
though not mutually exclusive, forms.
O ne very general one, examined in the case of Brazil, is
im port-substitution industrialization, where factories are built to
tu rn out commodities formerly im ported. Industrial developm ent
along these lines requires an adequate hom e m arket making
possible profitable production, usually behind tariff wajls. T he
aim of the im port-substitution strategy was to open the way for
207
a m ore diversified industrial structure, a varied assortm ent of
intercorinected sectors reducing dependence upon foreign capital.
T he outcome so far in Brazil and other Latin American countries has
been different: dependence has not been reduced and continued
industrialization has led to further foreign investment and industrial
production for export.
A m ajor objection to im port-substitution is that it reflected
m arket dem and, itself determ ined by an unequal distribution of
income. In the case o f a num ber of countries as different as Brazil,
India and Nigeria, industrialization has so far benefited mainly, if
not exclusively, the top 10-15 per cent o f income-receivers.
As it continues, im port-substitution industrialization requires
an increased im portation of m achinery and interm ediate goods,
suggesting fu rth er im port-substitution in sectors of industry for
which the country may not be well suited. One way o f continuing
im port-substitution is thus behind tariff walls, which may encourage
the setting up of inefficient or unviable industries. T he alternative
is to em bark upon a new strategy, using the m anufacturing
base already created to produce for export. Export-oriented
industrialization has been the path pursued with results generally
deem ed favourable, notably by the ‘newly industrializing countries’
o f Asia, especially the famous ‘gang of four’, South Korea, Taiwan,
Singapore and H ong Kong.
IN D U S T R IA L IZ A T IO N O F SM A L L E R C O U N T R IE S IN
A S IA
Underdeveloped countries exam ined in earlier chapters, China,

India and Brazil, have the advantage of being large in size
and population and possessing varied (though not always very
abundant) natural resources. At least they have, potentially, a
large hom e m arket capable o f sustaining a diversity of industries,
including some supplying capital goods. W here ‘self-reliance’ has
been pursued it has included such a goal. In the international race
for industrialization these countries have not been star perform ers
for reasons which have been examined. T he pride of place for rapid
and continuous growth has been held by the smaller Asian countries
ju st referred to. While there are m ajor differences between them
—Singapore and H ong Kong are city states with small populations,
South Korea is part of a divided country and Taiwan is a densely
populated island —they have crucial features in common. T he main
208
Industrialization in the ‘developing' countries
distinguishing feature is that they successfully adopted the strategy
o f export-oriented industrialization based upon labour-intensive
m anufacturing. This does not m ean that production for the hom e
m arket has been insignificant. Indeed, their early industrialization
was geared to import-substitution. Taiwan (with 20 million people)
and South Korea (with about twice as many) have a fairly im portant
hom e m arket, though one which could be satisfied by small-scale,
traditional industries after the style of Jap an at a corresponding
stage o f development.
A brief examination of these two countries may suggest to
what extent their experience may have lessons for the smaller
industrializing countries. Both were part of the Japanese colonial
em pire, grandiloquently described as the G reater East Asian
Co-prosperity Sphere. Taiwan was annexed from China in 1895 and
Korea was taken over in 1910. U nder Japanese rule these countries
were regarded as appendages to serve the interests o f the dom inant
economy and thus mainly as prim ary producers. By the 1930s,
however, partly to m eet military needs, some industries were set up
to take advantage of cheap and abundant labour. D uring Japanese
occupation, capitalist relations were introduced and there was some
scope for native capital in petty trade and industry. Especially in
Korea, the nucleus of a national bourgeoisie was created. Labour
conditions were harsh, Japanese rule was repressive and millions
of Koreans em igrated to M anchuria and Jap an in search of work.
While part o f the old feudal landowning class survived, m uch land
in Korea was taken over by Japanese. In Taiwan a num ber of old
landowning families collaborated with the Japanese and invested
in industrial undertakings. Most capital goods as well as many
m anufactured consum er goods came from Japan. A fter the defeat
o f Jap an in 1945 the governm ent of South Korea was set up under
American auspices, while the Communists took power in the North.
T he two states fought a civil war, 1950-53, with China supporting
the N orth and the United States the South. It ended inconclusively
and Korea remains divided. W hen Nationalist China took over
Taiwan its agents plundered and wrecked the economy. After the
defeat o f the Kuom intang (KMT = Nationalist) forces in China in
1949, the governm ent o f General Chiang Kai-shek, accompanied
by sections o f the army and civilian supporters num bering up to 2
million people, took refuge on the island claiming to be the authentic
governm ent of China, with the goal of liberating m ainland China
from Comm unist rule. In the meantime they took over control of
Taiwan.
209
T he Chinese Revolution and the Korean W ar led to a revision of
American strategy in which South Korea and Taiwan, as bastions
against communism, played a key role. T heir m odern economies, as
well as the form of state, resulted from the Cold W ar in Asia. W ithout
it they could well have rem ained predom inantly agrarian countries
with some light industry, little m ore than economic backwaters. As
it was they were thrust into the front line. T heir armies were built up
and equipped with American assistance; large amounts of economic
aid were supplied together with agricultural products u nder Public
Law 480. American advisers played an im portant counselling role
in determ ining economic policy.
T he American aim was to establish stable regimes in Taiwan and
South Korea together with a revival of Japan. In both countries
agrarian reform s took place which were fundam ental to the
economic changes which followed. In Taiwan the KMT appeared
to have learned the lesson o f their defeat in m ainland China - their
inability to carry out land reform and win over the peasantry owing
to the links between the officer corps and the landowning class. In
Taiwan they put into practice the radical policy o f Sun Yat-Sen —
revered founder of the KMT —of land to the tiller. An upper limit
was set to landowning and a land system based upon small peasant
proprietors was established. Likewise, in South Korea, a similar land
reform was carried out in the 1950s which eliminated the landlord
class.
D uring the 1950s the Korean economy was kept afloat
with American aid. Industrial revival mainly took the form
of import-substitution while there were various opportunities for
traders and contractors to accumulate capital, some of which could
find an outlet in m anufacturing. US advisers pressed for economic
changes which would strengthen the economy and reduce depend
ence upon aid, the am ount of which was diminished. T he Korean
governm ent first turned to m ore im port-substitution to reduce
the need for foreign exchange. Export prom otion was mainly
applied to prim ary products rather than m anufactured goods.
By the mid-1960s m anufactures were already form ing about half
o f exports and the governm ent gave increasing incentive to often
reluctant businessmen to use Korea’s cheap labour to build up the
export trade.
Although giving play to free-wheeling capitalism, the KMT
regime in Taiwan conserves specific features from its origins as a
military-bureaucratic apparatus imposed on a territory in which it
had no social roots. It was not linked to a conservative landowning
210
class. It did not have to contend with already entrenched foreign
capital in the shape of MNCs or even with a local capitalist class
of any importance. In o rder to build a viable economy of the
type acceptable to its American m entors, the regime had to create
an environm ent favourable to the appearence o f a capitalist class
while having to substitute for it in the meantime. T here is still a
substantial state sector similar to the bureaucratic capitalism of the
old regime in China. By the 1960s the country could be opened up
to the MNCs, especially in the new sectors like electronics, while
the local business class had grown in size and self-confidence and
become m ore distinctly Taiwanese.
Meanwhile, in the interests of cooperation with the People’s
Republic, W ashington ended its recognition of the Republic of
China on Taiwan. T he legitimacy of the regime ceased to be
connected with a future retu rn to the m ainland and was derived
instead from its ability to manage the economy, raising incomes
while keeping it internationally competitive. With almost half of
its GNP attributable to exports and 60 per cent o f those going to
N orth America, W estern Europe and Japan, Taiwan, like the other
‘newly-industrializing countries’, is in an exposed position. Its level
o f economic activity is bound up with the continued ability and
wilingness of high-income countries to buy its exports.
From the mid-1960s the growth in the incomes of consumers
in the advanced countries offered a large and growing m arket for
im ported m anufactured goods m ade by labour-intensive methods
in low-wage countries. Almost by accident, Korean policy-makers
stumbled upon the opportunities this opened up to earn foreign
exchange and substitute for the highly abnorm al dependence
upon US aid. A similar realization came to the governm ent of
Taiwan. Both countries were able to follow in the footsteps of
Japan and pursue the path of export-oriented industrialization
with great success. Moreover, once the process had begun, foreign
corporations could be attracted by cheap labour and other facilities
to set up their branch plants. Besides the appearence of locally-bred
entrepreneurs able to take advantage of the new opportunities,
American and Japanese firms began to see the value of Taiwan
and South Korea as export platform s to supply the world market.
American m anufacturers did so to meet Japanese competition, the
Japanese to regain their m arket shares. Taiwan and South Korea
encouraged the MNCs to set up branch plants or enter into joint
ventures. G overnm ent policies were significant in botfy cases in
guiding investment into new channels, such as consum er electronics
211
in the late 1960s. Both countries gained a fu rth er economic boost
from th^ Vietnam War. N either state was closely bound to a
conservative landlord class or even to the indigenous industrial
bourgeoisie; they used this relative autonom y to intervene effec
tively in the economy and shape industrial policy. They m aintained
a repressive stance both towards political dissent and to labour
organizations. Thus, although the state operated through m arket
forces, favoured capital accumulation and the pursuit o f profit, its
role in economic m anagem ent was clearly apparent. Especially in
Korea, local capitalists played the leading role, but it was m ade
possible by US policy in furnishing the aid, support and advice
in the initiation and the early stages of industrialization. Generous
quantities of American aid smoothed the path of the Korean and
Taiwanese economies in the troubled 1950s and early 1960s; once
on the road to industrialization this aid could be dispensed with.
In fact, the policy succeeded too well. T ogether with H ong Kong
and Singapore, Taiwan and South Korea constantly increased
their share of world trade in m anufactures, m ore than doubling it
between 1970and 1986. T he surpluses built up with other countries,
notably the United States, have now become a source of imbalance
in international trade. Like Japan, South Korea and, especially,
Taiwan have been reluctant to open up their hom e m arket to foreign
imports. Meanwhile the surpluses earned by these countries can be
used to invest in other countries or held as a reserve fund against
possible hard times. These countries are vulnerable to recession in
their markets in the advanced countries, to a protectionist back-lash
and to the rise o f competition from other industrializing countries
with lower wage costs.
To look m ore closely at the case o f South Korea, it has an
authoritarian form o f governm ent favourable to private capital and
a m arket economy, but it has not hesitated to intervene to guide the
economy along a predeterm ined course. While taking advantage of
relatively cheap labour to expand production in the labour-intensive
industries with the aim o f penetrating foreign markets, the
governm ent has the ambition of making South Korea an advanced
industrial country in the future. Like the Japanese governm ent in
the 1950s, it is not ready to accept the present comparative advan
tage in labour-intensive production as fixed. Looking ahead it aims
to create a comparative advantage in the future in m ore advanced
and capital-intensive industries which will endow the country with
a stronger and m ore diversified industrial base. Various types of
state favours and pressures have been used to direct capital into
212
establishing m odern steel plants, new shipyards, machinery and
machine-tool production, electronics (a labour-intensive industry
but of an advanced kind) and a m otor car industry. Foreign as well
as local capital has been encouraged to enter these fields by means of
tariff protection, financial privileges, tax concessions, assistance with
research and provision o f factory space on industrial estates built
with public funds. At the same time, governm ent officials, playing
an entrepreneurial role, use their influence with businessmen to
encourage scale economies, the adoption of the latest production
techniques and the drive for exports. T he firms which receive the
most governm ent favours are those striving to increase their share
o f export markets; those producing mainly for the domestic m arket
or not increasing their exports get little encouragem ent. T he drive
for export-orientated growth is a central part of the strategy. T he
impetus comes directly from the governm ent and benefits the most
enterprising, technologically-advanced and profit-seeking firms.
How far this strategy can succeed remains to be seen. In a
sense it is based on the assumption that there is room for another
Japan-type economy in Asia. It depends upon a governm ent which
favours business profits and helps keep wages low by authoritarian
forms o f rule. It assumes that Korean m anufactures will be able to
displace the Japanese in some lines of production and that there
will be a continued growth in the m arket for an increasing volume
o f exports. T he economy is thus vulnerable to any slowing down in
world trade, to competition from other industrializing countries and
to protectionist measures elsewhere (the Korean m arket is highly
protected). Wages are already higher than in Taiwan and H ong
Kong which may prove to be a liability in the future. Meanwhile,
the enorm ous investment already undertaken has resulted in
overcapacity in the face of the slowing down of foreign dem and.
Like Japan, Korea is sensitive to price increases for oil and other
im ported raw materials. W ithout continued rapid growth, especially
in exports, the economy could be in serious trouble.
IN F L U E N C E O F T H E M N C s
Export-orientated industry in the ‘developing’ countries has

attracted considerable investment by the MNCs mostly with
their headquarters in the United States though including some
from Europe and Japan. Attracted mainly by the availability of
213
Table Industrialization indicators, 1976: non-Western industrialized countries
214
This is an orthodox classification of countries according to their degree of industrialization measured by value added
in manufacturing and GNP. Countries classified as A have achieved some degree of industrialization by this measure.
Countries classified as B can be regarded as ‘newly-industrializing’; those classified as C have begun to industrialize, while
those classified as D have made little or no headway.
Value added in manufacturing
GNP per Growth Percentage

capita 1960-76, o f value
GNP per growth Total in constant added in
Population capita 1960-75 (millions o f Per capita prices Percentage commodity
Country (millions) (US dollars) (percent) US dollars) (US dollars) (percent) o f GDP production
ASIA
Hong Kong (A) 4.46 2,110 6.5 2,541 570 11.6 28.0 77.8
Singapore (A) 2.28 2,700 7.6 1,459 640 14.1 24.4 66.8
Taiwan (A) 16.30 1,070 6.3 6,320 387 18.0 36.6 63.8
China (People’s
Rep. of) (B) 835.80 410 5.2 139,684 167 6.9 40.7 51.6
India (B) 620.40 150 1.3 11,966 19 4.4 16.3 23.1
Korea (Dem.
Rep.) (B) 16.25 470 3.8 n.a. n.a. n.a. n.a. n.a.
Korea (Rep. of) (B) 35.97 670 7.1 5,692 158 18.8 26.6 42.8
Afghanistan (C) 14.00 160 - 0 .2 74 5 4.5 3.6 5.8
Bangladesh (C) 80.40 110 - 0 .6 319 4 2.6 6.0 8.7
Burma (C) 30.82 120 0.7 350 11 3.2 8.9 15.4
Cambodia (C) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Indonesia (C) 135.91 240 2.4 4,413 33 7.6 10.1 16.0
Malaysia (C) 12.65 860 4.0 1,866 148 12.0 19.6 32.7
Mongolia (C) 1.49 860 1.0 n.a. n.a. n.a. n.a. n.a.
Pakistan (C) 71.30 170 3.3 1,894 27 6.9 15.8 28.0
Philippines (C) 43.29 410 2.5 4,370 101 7.0 24.4 39.0
Sri Lanka (C) 13.81 200 2.0 324 24 5.0 14.5 25.0
Thailand (C) 42.96 380 4.6 2,917 68 10.8 18.3 33.4
Viet Nam (C) 47.60 n.a. n.a. n.a n.a. n.a. n.a. n.a.
Bhutan (C) 1.20 70 n.a. n.a. n.a. n.a. n.a. n.a.
Laos(C) 3.25 90 n.a. n.a. n.a. n.a. n.a. n.a.
Nepal (C) 12.85 120 0.5 157 12 n.a. 4.5 14.0
M I D D L E E A S T AND N O R T H A F R I C A
Jordan (B) 2.79 610 1.3 271 97 7.7 22.9 65.2
Lebanon (B) 3.06 1,070 n.a. 398 134 6.1 14.6 45.7
Algeria (C) 16.23 990 1.8 2,027 125 9.1 13.0 20.4
Iran (C) 34.30 1,930 8.1 6,979 204 13.5 10.2 15.1
Iraq (C) 11.48 1,390 3.3 1,076 94 7.3 6.7 44.3
Kuwait (C) 1.06 15,480 - 2 .9 n.a. n.a. n.a. n.a. n.a.
Morocco (C) 17.20 540 1.9 1,021 59 4.8 12.4 23.7
Saudi Arabia (C) 8.30 4,010 6.6 n.a. n.a. n.a. n.a. n.a.
Syria (C) 7.65 780 2.2 825 108 5.7 13.5 25.6
Tunisia (C) 5.73 840 4.1 431 75 9.8 10.8 21.5
Yemen Arab
Republic (C) 6.04 250 n.a. 23 4 n.a. 23.9 4.5
Oman (D) 0.77 2,680 10.1 9 11 n.a. 0.4 0.5
United Arab
Emirates (D) 0.69 13,990 13.7 n.a. n.a. n.a. n.a. n.a.
Yemen (People’s
Dem. Rep.) 1.49 860 7.6 11 73 8.2 7.4 23.7
A F R I C A S O U T H OF S A H A R A
215
Zimbabwe (B) 6.53 550 2.4 851 135 n.a. 24.8 44.2
Industrialization in the \developing* countries
Cameroon (C) 7.07 290 3.0 324 46 8.0 13.5 25.9
216
Central African
Empire (C) 1.83 230 0.4 89 49 5.8 22.9 31.1
Congo (People’s
Rep.) (C) 1.36 520 2.9 93 68 8.7 13.0 ~ 4 6 .3
Ghana(C) 10.14 580 - 0 .2 1,973 195 3.0 24.8 33.5
Angola (D) 5.47 330 3.6 168 31 7.6 5.3 9.4
Benin (D) 3.20 130 - 0 .3 51 16 6.0 10.1 19.1
Botswana (D) 0.68 410 6.0 16 23 5.5 5.4 13.6
Burundi (D) 3.81 120 2.7 26 7 12.7 10.1 13.1
Chad (D) 4.12 120 - 1 .1 45 11 2.3 9.6 14.6
Ethiopia (D) 28.68 100 2.0 275 10 7.6 10.3 15.8
Equatorial Guinea (D) 0.32 330 - 0 .9 n.a. n.a. 8.5 n.a. n.a.
Gabon (D) 0.54 2,590 5.0 105 194 n.a. 7.4 14.9
Industrialization in the non-Westem
Guinea (D) 5.69 150 0.2 n.a. n.a. 17.8 n.a. n.a.
Lesotho (D) 1.24 170 4.6 2 2 17.8 2.4 5.4
Liberia (D) 1.60 450 1.8 36 22 12.2 5.3 7.6
world
Mozambique (D) 9.46 170 2.0 314 34 8.5 12.0 20.1

Niger (D) 4.73 160 - 1 .3 99 23 12.5 16.4 25.8
Reunion (D) 0.50 1,920 3.9 n.a. n.a. n.a. n.a. n.a.
Rwanda (D) 4.21 110 0.5 29 7 7.0 10.0 13.5
Sierra Leone (D) 3.05 200 1.5 30 10 2.3 5.6 13.8
Somalia (D) 3.25 110 - 0 .3 25 8 16.8 8.3 20.9
Sudan (D) 15.88 290 0.1 397 26 1.9 9.7 17.0
Tanzania (D) 15.123 180 3.0 244 16 8.5 10.3 17.0
Togo (D) 2.28 260 4.4 63 28 6.7 10.6 30.0
Uganda (D) 11.94 240 1.0 176 15 1.9 6.7 10.7
Zaire (D) 25.39 140 1.6 210 9 8.0 10.0 21.5
LATIN AMERICA
Argentina (A) 25.72 1,550 3.1 16,240 631 5.9 34.3 61.4
Brazil (A) 109.96 1,440 4.3 33,351 266 12.0 28.8 62.0
Chile (A) 10.45 1,050 1.3 2,383 228 2.8 21.6 51.7
Mexico (A) 62.02 1,090 3.2 20,537 331 8.2 26.1 58.9
Barbados (B) 0.24 1,550 5.3 39 144 3.2 11.3 35.3
Bolivia (B) 5.79 390 2.5 265 46 5.1 10.7 18.1
Colombia (B) 24(23 630 2.7 3,429 142 6.9 22.7 40.5
Costa Rica (B) 2.01 1,040 3.4 298 152 10.0 17.8 38.2
Cuba(B) 9.46 860 - 0 .6 n.a. n.a. n.a. n.a. n.a.
Dominican Republic (B) 4.84 780 3.4 757 161 7.8 21.0 39.1
Ecuador (B) 7.32 640 3.4 798 110 7.8 16.1 33.8
El Salvador (B) 4.13 490 1.8 349 85 7.1 16.0 33.7
Guatemala (B) 6.48 630 2.4 609 94 7.2 15.5 35.1
Guyana(B) 0.78 540 1.5 50 64 3.6 12.1 20.6
Honduras (B) 2.98 390 1.5 188 ,63 5.3 17.2 30.2
Jamaica (B) 2.08 1,070 3.6 593 285 4.4 19.5 40.8
Nicaragua (B) 2.33 750 2.4 393 169 8.8 21.3 41.8
Panama (B) 1.72 1,310 4.1 266 165 8.4 14.5 34.9
Paraguay (B) 2.63 640 2.0 272 104 5.6 16.0 28.2
Peru (B) 15.83 800 2.7 2,234 141 7.0 18.6 38.9
Trinidad and Tobago (B) 1.09 2,240 2.5 360 330 8.1 14.1 21.7
Uruguay(B) 2.80 1,390 0.5 792 283 1.7 24.8 53.0
Venezuela (B) 12.36 2,570 2.2 5,363 434 6.2 17.3 32.1
Haiti (C) 4.67 200 - 0 .4 150 33 2.0 17.1 27.4
Surinam (C) n.a. n.a. n.a. 33 90 - 3 .6 7.1 13.5
Source: World Bank, World Tables, 1976 Johns Hopkins University Press: (Baltimore, 1976), April 1979 data base.
The tables are based on World Bank figures given in John Cody et al. (eds) Policies fo r Industrial Progress in Developing
Countries (Oxford U.P. 1981) to which reference should be made for a full explanation of the sources. The countries
tso have been regrouped under regional headings to bring out the limited amount of industrialization actually to be found
in Africa and Latin America in particular and the great unevenness of development within continents.
cheap labour, they have set up branch plants in these countries,
sometirnes for the assembly of parts and components, sometimes
for the m anufacture of a complete product. In some cases m anu
facturing facilities have been closed down in the country of origin
and expanded in low-wage countries. T he explosive growth o f the
electronics industry requiring a large am ount o f labour-intensive
assembly work has been particularly notable, but a wide range of
other goods is also m anufactured un d er the auspices o f the MNCs.
T he low cost of transport, including air freight, has m ade possible
global operations by m anufacturing concerns on a scale which would
have been inconceivable a few years ago.
Local capital has joined in this type of export-orientated
industrialization either independently or in association with the
MNCs. In any case, it is generally dependent upon firms in the
advanced countries for technology; this is evident from the setting
up of joint projects. Since the 1960s some types of industrial
production have been almost entirely transferred to the periphery
of ‘newly-industrializing’ countries. It has been claimed that a new
international division of labour has taken shape and that a continu
ous process of industrial relocation can be expected. T he attraction
of investment in these countries is derived almost exclusively from
the fact that they have almost inexhaustible supplies o f cheap labour
power, the use of which helps to keep up the overall rate o f profit
of the MNCs.
W hether controlled by the MNCs, or by local firms, or by
some kind of joint operation between them, this export-orientated
industrialization has served to underline the dependence of the
‘newly-industrializing’ countries on the world m arket, as well as
upon im ported capital and technology. W hat it has done, and this is
its positive side, is to make possible m ore rapid rates of growth, a shift
of resources into m ore productive sectors, raising overall income
and creating m ore jobs. These are the aspects which are stressed
by such bodies as the W orld Bank. It is an assessment of the process
almost exclusively in quantitative and economic terms regardless
o f its social content. A closer look at the statistics themselves (see
Tables) shows that the main participants in the industrializing trend
have been a relatively small group of countries. T here have been
Latin American countries, o f which Brazil is the leading example,
and there have been the Asian countries such as South Korea, as
well as Taiwan (the base of nationalist China), and the city-states of
Singapore, H ong Kong and Macau without an agrarian hinterland
(the last two being what is left of the old treaty-port system in
218
China). South Korean and Taiwan both received large am ounts of
American military and economic aid in the 1950s. Singapore and
H ong Kong both enjoy a special role in international trade and
finance which arises from their geographical situation. Most of
these countries have one-party or military regimes and, while they
may be protective o f foreign capital, they generally prevent trade
union bargaining and strikes.
Although there are differences in the strategies o f industriali
zation pursued by these countries, they have as a common feature
an emphasis on exports and hospitality towards foreign capital and
the MNCs. T he limitations of this approach have already been
discussed with reference to Brazil and South Korea. It obviously
has a different significance for city-states than for larger countries,
with a substantial agrarian sector. In the case of the city-states and
the free-trade zones set up in some larger countries, wages and
incomes are generated but the main markets are found elsewhere.
T heir main attraction is simply that they have an abundant supply
of relatively cheap labour-power. Countries which have a substantial
agrarian sector are in a different position. O ften it is underem ploy
m ent in agriculture which ensures a continuous supply o f cheap
labour for industry. But this also restricts the expansion of the
hom e m arket, in the absence of radical agrarian reform . Industrial
production, being for export, does not assist change and growth
in agricultural production. Instead of an agricultural revolution
preceding and accompanying industrialization, as in the case of
Britain, in these countries no real organic relationship is established
with agrarian change. Although the export industries create some
new jobs, other livelihoods may be destroyed; some regions expand,
others may stagnate. Indeed, factory areas may assume an enclave
character, as off-shoots of a m ore advanced economy in an otherwise
underdeveloped country.
Much export-orientated industrialization has been sponsored
by the MNCs in partnership with the governm ent bureaucracy
or local capitalists. In other cases the MNCs have played a
role in im port-substitution industrialization, aimed mainly at the
higher-income m arket (as in Brazil). In Mexico there has been a
growth o f assembly plants along the frontier with the United States
having that m arket in view. W hether the plants are located in Asia or
Latin America the strategic decisions are taken in the headquarters
of the operating corporations who bring in the necessary capital,
technology and m anagem ent skills. This can be seen as a njew stage
in the internationalization of capital, with m anufacturing branches
219
located to maximize profits and make possible the most rapid
accumulation of capital. Its strategic aim is not industrialization
as such and there is no necessary comm itm ent to the economic
developm ent o f the host country. In some cases processes may be
used which, because they cause pollution, would not be perm itted
in m ore advanced countries.
Export-orientated industries in the ‘new-industrializing’countries
look for their markets mainly in the older industrial countries,
thus creating a new challenge and new contradictions. O n the one
hand, the commodities exported are generally cheaper than those
produced inside the markets they are entering, thus offering a
gain to consumers. O n the other hand, the competition of these
im ported products has already forced the contraction or elimination
of industries in the advanced countries. T he MNCs thus tend to
relocate their factories away from the older industrial countries
where costs are higher to the ‘newly-industrializing countries’ where
they are lower, mainly because o f low wages. For example, a South
Korean worker - am ong the best paid of Asian workers - earns in
a m onth what the American or Germ an worker earns in a week or
ten days - and produces as much.
Even where MNCs are not involved, factory industries in
‘newly-industrializing countries’ will have to export in order to
realize scale economies. T hat means, in most cases, an attem pt
to penetrate the markets of the advanced countries where they
compete with local industry. In the latter, some industries have
already declined or ceased to exist owing to foreign competition.
In a period of recession especially, there is a growing dem and for
protective duties or ‘im port controls’. In certain cases, such as the
G erm an footware industry, there has been a shift of capital invest
m ent to the ‘newly-industrializing countries’ and that is another
trend which is likely to continue. Coming after the devastating
effect of Japanese competition on some industries, a continuing
flood o f im ports threatens to accelerate ‘de-industrialization’ in the
older industrial centres, unless capital can be rapidly deployed into
new fields, a process which is taking place all too slowly.
N E W L Y -IN D U S T R IA L IZ IN G C O U N T R IE S A N D T H E
W ORLD M ARKET
T here is some dispute about the extent to which industrialization,
220
in the sense of the growth of m anufacturing output, has actually
taken place in the developing countries. In fact it has been a very
uneven process between countries and also within their frontiers. On
a world scale there is no doubt that the older industrial countries still
m aintain their dom inant position. They are still the main source of
technology and capital goods, without which industrialization else
where cannot begin. They are the homes of the giant MNCs whose
policies determ ine how m uch industrialization can take place in
many o f the ‘newly-industrializing countries’ through their control
of finance and technology. Most o f the latter, if they are drawn
into the world m arket, rem ain principally exporters of prim ary
products, and income derived from these, unequally distributed
though it is, provides the principal m arket for the purchase of
m anufactured goods.
In general, therefore, industrialization in the underdeveloped
countries assumes a different form from that in present-day
advanced countries. Quantitative measures of growth by themselves
can be misleading without an appraisal of the total consequences of
the introduction o f factory industry. In many cases it may simply
feed on the backward sectors o f the economy and aggravate the
problems of poverty and stagnation, leaving large areas of the
country and many sections o f the population seriously disadvan
taged. Part o f the output o f m anufactured goods may be exported,
or consumed only by a minority o f higher income receivers at
home. Successful industrialization in the m ore highly-populated
countries with a large agrarian sector must be accompanied by a
structural transform ation which enables problems o f rural poverty
to be overcome and makes possible balanced growth in the society
as a whole.
While the quantitative change should not be underestim ated. It
does not necessarily indicate that a genuine industrialization process
has begun. T he Asian examples of rapid growth may be defined
as peripheral industrialization, based as they are very m uch upon
exports. T he Latin American examples have been similar, with the
MNCs playing a leading role as part of the ‘new international divi
sion of labour’. T he African countries have witnessed relatively little
industrialization. T he fragm entation of the continent by colonialism
still has its effect in the many separate states, most o f them too small
to support m ajor industries. Many of the industries which have
grown up in the past two or three decades are high cost and produce
mainly for the new ruling elite and the better-off minority.^ T here
has been no basic change in the relation o f these countries to the
221
world market; as prim ary producers with an export-orientated bias,
their cjependence on the extra-territorial companies and advanced
countries is as great as in colonial days. Efforts to industrialize
carried out by most African states on im port-substitution lines have
created new ties of dependence, this time for capital, technology,
and technical and m anagerial know-how. In the main the new
ruling elites support and benefit from the m aintenance o f capitalist
relations of production and the continued dependence o f their states
upon the world m arket dom inated by the advanced countries.
EG YPT
Actual cases show that it is extremely difficult for any u n d er

developed country to carry industrialization beyond certain limits,
because of dependence upon the world m arket. Attem pts at
industrialization in Egypt go back to the reign o f M ohammed Ali
in the early nineteenth century. He initiated a state program m e,
designed to strengthen the economy of his country, not unlike
that of Peter the Great in Russia a century before. T here
was some success in founding new industries with im ported
machinery, notably in cotton textiles and food-processing. T he
effort was, perhaps, doom ed to failure, depending as it did upon
the drive of one m an and continued support by the state of a still
backward country. T he Anglo-Turkish Treaty of 1838 insisted
upon the ending o f state monopolies, and Egyptian industries,
already running into problems, subsequently collapsed. For the
rest of the nineteenth century, Egypt became a prim ary-exporting,
predom inantly agricultural country. Heavy indebtedness resulted
in the British occupation o f 1882 which lasted until 1956.
During this period industrialization came to be identified with
the drive for national independence. It was supported by some of the
wealthy landowners and m erchants who recognized the danger of
undue dependence upon cotton-growing. Some import-substitution
industries were established and, as in other underdeveloped coun
tries, this trend was assisted by the two world wars and the slump in
export prices during the 1930s. By the 1950s some industries had
been built up, but they produced mainly for the wealthy minority;
the mass o f the people, employed in agriculture, could buy little.
On a per capita basis, Egypt was one of the poorest countries in
the world. With the death rates falling from the 1940s onwards, the
222
country was faced with a population explosion, a virtual doubling,
between the mid-1980s and the mid-1960s, to over thirty million. At
least this m eant a large potential labour-force and a home market,
if only incomes in the agricultural sector could be raised.
A lthough the state had assumed some responsibility for economic
developm ent in fields such as irrigation and transport, free m arket
forces held sway until 1939. It was not until after the taking of power
by the Free Officers in 1952, and particularly after the Suez W ar of
1956 and the sequestration of enemy property, that the state actively
began to prom ote industrialization. By 1957 the state was in control
o f the main channels of industrial investment. In 1961 banking and
insurance, most organized industry and large firms in other sectors,
including foreign trade, were nationalized. State control reached its
high point in the period up to 1973, during which Egypt depended
upon Soviet military and economic support. T he breaking of these
ties saw a tu rn to an ‘open-door’ policy designed to attract foreign,
especially American and Arab oil-state, capital.
In 1960 the first Five-Year Plan was adopted and in the
following years the state pum ped large amounts of capital into
industry and other types of public investment. However, although
there was some redistribution of land from large to small owners
by the land reform s o f 1952, the distribution o f property rem ained
unequal. State employment, the professions, land ownership, trade
and small-scale production provided relatively high incomes for the
ruling elite and bourgeoisie. T he continued poverty of the masses
limited the size of the internal m arket and confined it to certain
types of product.
Despite rapid growth of output in some periods and a
shift towards a m ore diversified industrial base, Egypt remains
basically underdeveloped, still in the stage of import-substitution
and dependent upon prim ary-product exports, especially cotton
(about 45 per cent of total m erchandise exports). Difficulties in
generating sufficient capital for investment necessary to continue
industrialization has increased dependence upon foreign sources.
Resources have also been diverted into military purposes by the wars
with Israel and perm anent tension in the region. Industrialization
so far has not absorbed the country’s surplus m anpower or made
possible an appreciable im provem ent in the living conditions of the
masses.
Unlike some ‘newly-industrializing countries’ Egypt has not been
very successful as an exporter of m anufactured goods. T h^re has
been some export of textiles, replacing raw cotton, but industry
223
generally has not been export-orientated. Egypt has not attracted
m anufacturing plants of the MNCs on any scale despite the ‘open
door’ policy pursued since 1973, and the supplies o f cheap labour.
This may reflect lack of confidence in the regime or, m ore likely, in
the stability of the region as a whole in the light of the Arab-Israeli
conflict and the assassination in 1981 o f President Sadat.
T H E W O R L D E C O N O M IC C R IS IS
T he change in the world economic situation which set in during

the 1970s has created an environm ent generally less favourable to
newly-industrializing countries. T he four-fold increase in oil prices
in 1973 (as OPEC realigned them with world m anufacturing prices
boosted by inflation) and the variously caused but interconnected
economic crises of the advanced countries, aggravated their diffi
culties. While the oil price rise benefited the oil producers it was
a blow to the oil-importing developing countries. O ther prim ary
producers have not been so successful in making cartel-type
agreem ents to improve their terms of trade. As for the major
oil-exporting countries, with a few exceptions such as Venezuela,
Nigeria and Algeria, they are sparsely populated and merely came
into possession of huge quantities of dollars for which there were no
outlets at hom e and which had thus to be invested (or ‘recycled’) in
the world’s financial centres. T he m ore densely populated countries
have, it is true, been able to use the increased income to finance
developm ent projects. In the case of Iran, the excesses o f the
Shah’s regime and Islamic opposition to ‘m odernization’, sparked
off a revolution resulting in a sharp fall in petroleum production in
that country. This resulted in a furth er large increase in prices. T he
consequences for the non-oil producers was an unwelcome increase
in im port bills for essential supplies of fuel, fertilizers and other
petroleum -based products, leading to balance of payments deficits
and increased indebtedness.
While the oil shocks of 1974 and 1979 hit the oil-importing
countries and greatly increased the revenues of the producers,
other consequences followed. Re-cycling oil money enabled the
commercial banks to lend m ore bountifully to ‘developing’ countries
including those oil-producers, like Nigeria, who spent ahead of
receipts. T he early 1980s saw the collapse o f oil prices and the
end o f the lending spree together with another recession in
224
the advanced countries which hit ‘newly-industrializing countries’,
especially the weaker of them. Inflation has driven up the price o f
m anufactured imports such as machinery and machine-tools, while
prim ary-product prices have generally not risen so much. At the
same time, the dem and for some o f their exports has stagnated
and m arkets have become m ore competitive, sometimes with sharp
price fluctuations. Many ‘developing countries’ have thus found it
increasingly difficult to pay for their imports and to service past
debts. Since foreign banks and international consortia are heavily
involved in lending to these countries, there is growing fear o f
defaults which could underm ine the whole edifice of international
finance.
On the industrial front, as a result of the crisis, investment,
production and productivity have all tended to slow down in the
industrially-advanced countries, though unevenly and in varying
degrees. This has m eant intensified competition for markets
tending to grow m ore slowly in real terms than before, and
has helped to focus attention on the challenge o f exports from the
‘newly-industrializing countries’. T he inflow of competitively priced
m anufactured goods such as textiles, clothing, footware, cutlery and
electronic products, results in the undercutting of hom e industries,
and tends to aggravate the consequences o f the recession. However,
a protectionist reaction on the part of the richer countries can only
make it m ore difficult for others to pursue their industrialization,
especially where it has been export-orientated.
SU CCESS O F IN D U S T R IA L IZ A T IO N ?
It is too early to say w hether industrialization in the less-developed

countries has been ‘successful’. In quantitative terms many of these
countries have been industrializing, some of them at a rapid rate,
since the 1950s. Many different strategies have been pursued with
little or no international coordination. Except in the case of centrally-
planned economies, such as China, which consciously pursues poli
cies o f ‘self-reliance’, industrialization has m eant greater rather than
less dependence upon the world market. T he export-orientated
countries obviously m ust have not only a foreign m arket, but
a growing one, if their economies are to flourish. Even countries
committed to im port-substitution find that they require increasing
am ounts of foreign capital and technology and probably ail export
225
m arket as well if growth is to continue. Most ‘developing countries’
(except^ those with so few resources that they seem condem ned to
stagnate) still export prim ary products and are sensitive to world
m arket fluctuations. Moreover, where profits have been seen in
industrial investment making use of cheap labour power and other
advantages, the MNCs have moved in and tied the host countries
into a ‘new’ international division of labour as dependent partners.
Countries aiming at economic independence have not been able to
avoid the need, in some degree, for foreign aid and credits. Even
China has actively sought closer links with the capitalist world
economy to make possible faster industrialization. In the generally
less expansionist international environm ent since the 1970s, many
governments have been looking for increased foreign aid, which
they mostly believe has been on an inadequate scale.
Much of the ostensibly most ‘successful’ industrialization in the
‘developing countries’ has consisted largely of the establishment of
a branch-plant economy, coupled with heavy governm ent indebt
edness not balanced by the creation of productive (i.e. income-
producing) assets. Brazil is a rapidly industrializing country but most
of its newly-built factories are foreign-owned and the state has heavy
external debts. Despite having a large and impoverished agrarian
population it imports foodstuffs, exports m anufactures for which
there is no internal m arket and still depends upon coffee sales for
export earnings. As with countries in a similar position, the outflow
of dividends and interest on existing foreign investment exceeds the
inflow o f new capital. W hether this type of industrialization can be
accounted a success or not —and it has, admittedly, raised living
standards for many Brazilians —it is distinctly different from that
which took place in Europe, N orth America and Japan. T he view
that industrial capitalism would provide a firm basis for democratic
institutions after the fashion of Britain and the United States has not
been borne out in the ‘newly-industrializing countries’. US policy
in Latin America, as well as in East Asia, has supported ‘mildly
repressive regimes’ when the alternative seemed to be a move to
the left. Likewise, the theory that industrialization in South Africa
would underm ine the basis for apartheid seems also to have been
falsified. T he upheavals which have accompanied industrialization
do not have the same results everywhere. Economic difficulties
helped to bring about the end of direct military rule in Brazil but
led to its restoration in Nigeria. Indebted countries and others
wishing for aid are told by outside bodies like the W orld Bank to
impose austerity program m es and liberalize their economic policies.
226
W hether giving m ore scope to the forces o f the free m arket will
contribute to political stability or bring social peace is problematic.
It is safe to say that such countries will need strong security forces.
Even countries which have been relatively tranquil in the past have
shown a capacity for political upheaval, including South Korea and
even Taiwan.
It is perhaps significant that the new urban middle class, which
has been such a feature of countries otherwise as different as Brazil
and Nigeria, is now having difficulty in m aintaining its real income
in the face of inflation and cuts in governm ent spending. This
may presage a shrinkage of dem and for hom e-produced as well as
im ported m anufactured goods and could be a de-stabilizing factor.
S O C IA L C O N S E Q U E N C E S
Meanwhile, the social consequences of industrialization in the

‘developing countries’ have not been dissimilar to those of the
early industrial revolution in Britain. Long hours, low wages, poor
working conditions, unem ploym ent, urban overcrowding and slum
housing have all been the rule. Despite statistics showing rising per
capita GNP, this does not necessarily m ean any perceptible im prove
m ent in the living standards of the great majority or any gain in
welfare. Overall there has been a widening of income inequalities
and increased social tensions with the main benefits going to a privi
leged minority. Moreover, in many ‘developing countries’ squeeze,
graft and corruption of various kinds are rife; illicit activities, such
as smuggling, bring rich rewards to those involved. In general,
then, there has been widespread disappointm ent with the results of
three decades of ‘developm ent’. Rapid rates of population growth
consequent upon improvements in medical knowledge and hygiene,
which have brought down mortality rates, have eaten up much of the
increased output. Rural overpopulation remains endemic in many
parts of the world and the rate of increase of the labour force far
exceeds the rate at which new jobs can be created. In countries such
as India, Bangladesh and Pakistan, some Latin American countries
and m uch o f Africa, the scale and intensity of mass poverty remains
formidable.
On the other hand, industrialization cannot be blamed for these
conditions and may have done something to alleviate theiry G ener
ally speaking, in any attack on poverty in the ‘developing countries’
227
industrialization, though not necessarily along present lines, will
surely lê a m ajor weapon. T he problems o f an overpopulated,
backward agrarian sector will have to be tackled with m uch m ore
vigour than has so far been the case outside China and similar
countries. Export-orientated industrialization, m ore investment by
the MNCs and foreign aid will never make any impression on these
problems, and may, in the long run, aggravate them.
T he problem is to raise the income o f the agrarian sector
by harnessing under-used labour, thus widening the m arket for
industry, w hether located in the countryside or in the towns. In
many countries, such as India, a far-reaching agrarian reform ,
or revolution, would seem to be a prerequisite for the kind of
industrialization program m e able to realize the declared objectives
o f governm ents and planners. Powerful classes in the countries
concerned are bound to resist any change along these lines and they
will be backed up by all those interests in the m etropolitan centres
which benefit from the existing international division o f labour and
the type o f industrialization so far prom oted.
Some have argued that capitalist developm ent since the 1950s
has brought benefits to the ‘newly-industrializing countries’. T hat
is true in the sense that any type o f growth is better than stagnation
and that the ending of colonial rule and the breaking up of archaic
structures were steps forward. But these benefits are very relative
and one-sided, as has already been shown. T he old colonial forms
have given way to new types o f dependency. Industrialization has
not really prepared the way for national economic independence,
nor has it brought about, in most cases, structural transform ation
of the kind experienced in Europe, N orth America and Japan.
At the same time, an irreversible process has undoubtedly
begun. New classes including an embryonic industrial proletariat
have evolved. T he dem and for improvements in living standards
and social welfare has been implanted, w hether or not they have
so far been enjoyed by m ore than a minority. This is a dynamic,
indeed a revolutionary factor, operating in all the countries in which
industrialization has taken place. T he question o f the developing
countries has become crucial because millions of people are no
longer willing to go on living indefinitely in wretchedness and
hunger. They want to know who will deliver the goods and if
present strategies and existing regimes fail, there will be a clamant
dem and for alternatives which will have international consequences.
228
CH APTER 9
Conclusions
Although some comparative references between countries have

been m ade in the course o f these case studies, detailed comparisons
will be left to the reader. However, some general guidelines can be
suggested for fu rth er study.
T he studies reveal a diversity of ‘models’ each o f which has
its unique characteristics reflecting the national and historical
conditions of its own industrialization process. At the same time,
the very fact that such a process can be conceptualized suggests
that it has definable and repeatable components - as was pointed
out in the first chapter. A review o f the actual experiences of the
countries selected confirms this assumption. Even from a superficial
point of view it can be said that they produce the same artifacts,
become m ore alike, at least in externals. T he same impression can
be confirmed from a quantitative point of view: output per head
and income rise. Successful industrializers begin to close the gap
with the leader countries; some late-comers have outstripped the
early starters.
Only Britain, and to some extent the m ore advanced parts
of north-west Europe, can be said to have generated industrial
capitalism and the institutions and technology which go with it,
as an autonom ous developm ent from the pre-industrial mode of
production. In the case of Britain this was ‘feudalism ’. T he countries
studied in this book may, if left to themselves, have followed the
same path in their own time. As it was, because o f the priority of
Europe, they received capitalism and m odern industrial technology
is an import.
229
C O M P A R A T IV E M O D ELS
| . .
O f the examples studied, Japan stands out as being the most ‘suc
cessful’ of the non-W estern countries in assimilating and adapting
the W estern developm ent model, firstly, on a limited scale under
Meiji, secondly, on a m ore spectacular scale after the Second W orld
War. Not only did Jap an establish a dom inant position in the O rient,
but it now ranks num ber three in world industrial power and is still
growing. While profiting from specially favourable international
conditions, in ways which rem ain a m atter for investigation and
controversy, Japanese society appears to have been especially
receptive to m odern technology. Some see in Ja p an ’s impressive
rise the alternative form of capitalism for the twenty-first century.
However, whatever it is specifically Japanese which has contributed
to this outstanding success, it does not seem to be exportable; not, at
any rate, to the advanced W estern countries. T he closest emulators
are to be found in Asia, notably in South Korea and Taiwan.
Unique in a different sense was the experience o f the Soviet
Union. While able to build upon what Tsarism had already
accomplished, in the shape of m odern industry and infrastructure,
the post-1917 regime broke with capitalism, nationalized industry,
collectivized agriculture, and em barked, from about 1928 onwards,
on a breakneck drive for industrialization on a scale never before
witnessed. Accompanied by incredible barbarities and unnecessary
hum an suffering, the crude type of planning imposed under Stalin
transform ed a relatively backward country into a m odern industrial
giant. Nonetheless, successive Five-Year Plans have not enabled the
Soviet Union to catch up with the West. Its form erly unprecedented
rates of growth have been exceeded by other, capitalist, countries,
and it is now back to a m ore sober tem po of 4 or 5 per cent
per annum . Besides, the Soviet economy is itself going through a
structural crisis as the attem pt is m ade to transform the m ore basic
forms o f growth to the production of an assortm ent o f goods m ore
in line with consum er needs.
T he gap between the Soviet Union and N orth America and
W estern Europe is still appreciable, and the differences between the
two social systems remains as sharp as ever despite what the ‘con
vergence’ theorists have suggested. T he crisis of the Soviet Union is
qualitatively different; it does not arise from pressure on the rate of
profit, nor is it revealed in over-production or unemployment. T he
problem in the Soviet Union is under-production and the scarcity,
or m ore strictly the maldistribution, of labour.
230
Conclusions
China, though never a colony, was draw n into contact with
W estern capitalism in a dependent relationship. It thus failed to
take the same road as Japan and the extent o f industrialization was
relatively modest before the Chinese Communist Party took power
in 1949. M odern industry was largely concentrated in the treaty
ports and M anchuria, being partly im port-substitution in nature,
and partly export-orientated. It m ade little impact on the lives and
living conditions of the huge rural mass. W hen a new phase of
industrialization began un d er Communist leadership, the existing
industrial base was thus m uch narrow er than it was in Russia after
1917. While the supporters of Mao had reservations about the
Soviet model, in the circumstances of the 1950s, where China faced
a hostile capitalist world, it had to depend upon Soviet aid which
took the form mainly of assistance in building up a heavy industry.
A similarly centralized planning system was also adopted. U nder
Mao’s influence, following the break with the Soviet Union, a new
strategy was followed with agriculture carried on by huge communes
and some decentralization of industrial production so that it could
m ore directly serve rural needs. T here followed a series of massive
upheavals and the eventual reversal of Mao’s course by his succes
sors. They are now pursuing a m ore conventional industrialization
program m e, still m uch influenced in practice by the Soviet model
and based on the adoption of W estern technology and even the
experience of Japan.
J a p a n ’s example undoubtedly influenced Indian nationalists
whose case against British rule included the charge that it held back
industrialization. Independent India em barked upon an ambitious
industrialization program m e influenced by the British as well as the
Soviet model with serious handicaps as well as some advantages. T he
latter included some m odern factory industry, mainly in textiles,
a national entrepreneurial class and an industrial labour force.
Despite the declared aim o f ‘a socialistic pattern of society’ the ruling
National Congress in fact chose a capitalist road. State planning was
mainly confined to heavy industry and utilities, leaving the rest of
the economy in private hands. T here was no fundam ental agrarian
reform and social promises (to abolish poverty, for example) have
not been translated into practice. Massive poverty and a low average
per capita income still dog India, despite three decades o f ‘planning’.
T here has not been a structural transform ation; a great mass of
rural labour rem ains underem ployed, and the capital flowing into
industries serving mass dem and has been inadequate simply because
the internal m arket has been too small for profitability. On the other
231
hand, there has been no shortage o f investment in industries serving
the top li) or 15 per cent o f income-receivers.
Indian economic perform ance has im proved since colonial days
but it m ust do m ore than tick over and serve the needs o f the
relatively affluent, if a disaster is to be averted.
Brazil is perhaps the least known o f the models examined
in this book. Sharing many o f the problems of other Latin
American countries, such as a backward agrarian sector and
inflation, it has been the most successful in industrialization. In
some ways it has been the Japan of Latin America in quantitative
terms. T he policy and approach to industrialization has, however,
been fundam entally different. While Ja p an ’s industry has rem ained
un d er national control and dependence upon foreign capital has
been kept to a minimum, Brazil inherited a colonial legacy of
economic dependence. Much o f the industrial investment has been
controlled by foreign MNCs, while the state has depended heavily
upon external borrowing. While there is a local entrepreneurial
class, it has had to lean heavily upon the state and enter into
partnership with foreign capital. Brazil is a classic case o f import-
substitution industrialization and dem onstrates its limitations. In
fact the stranglehold o f dependence has not been broken. Much
of the output o f the m odern sector o f industry is consumed by the
better-off urban middle and up p er classes. Mass poverty remains
endemic, especially in the m ore backward agrarian regions such as
the north-west. T he limitation o f the internal m arket has directed
much o f the capacity o f the m ore m odern industry towards the
foreign m arket. Despite quantitative successes, Brazil can hardly
be regarded as a satisfactory model for other newly-industrializing
countries.
Post-colonial Africa has not been able to shake off the legacy
of the past and enter a new economic era. It contains some o f the
poorest countries in the world and, in some, starvation and famine
are ever-present realities. W here gains have been m ade they are
small, insecure and dependent upon foreign aid. Nigeria is the most
populated African country; in some ways, also, it has been the most
favoured country in Black Africa, most recently as an oil-producer.
T he attempts at industrialization in that country, where only about
8 per cent o f GNP comes from industry, deserve study and appraisal.
A fter the sanguine expectation of prosperity held out at the end of
the 1970s, Nigeria has suffered serious setbacks which critics would
say are of its own making. A question m ark hangs over future
prospects for industrialization in that country.
232
Conclusions
T he countries exam ined in these case studies were large in
population and economic terms, as well as, in most cases, size.
Size is, potentially, an economic advantage, but this advantage
will only be realized if industrialization is successful. Small
countries are not necessarily disadvantaged and most ‘successful’
newly-industrializing countries are small or medium-sized. T he
examples which are usually cited include Korea, Taiwan, Hong
Kong and Singapore. These countries have succeeded in achieving
spectacular rates o f growth. They have done so largely by attracting
foreign capital and branch plants, with m uch of the output o f the
m odern industrial sector going into exports. In addition to this,
they have depended upon export-orientated growth, thus tying
their economies to the m arkets of the richer, consuming countries.
T he kind of problems which have arisen have already been
discussed. Industrialization has been based upon abundant supplies
of relatively cheap labour and a docile population without trade
union or political rights, kept in check by one-party or military
regimes. If the less-developed countries are to industrialize, and if
they do not they cannot develop, the smaller ones at least will have to
export. T he penetration of the m arket in the advanced countries by
low-priced imports could perhaps be tolerated in a period of boom,
but is causing increasing problems in a period o f world recession.
It is not certain that recourse to export-orientated industriali
zation will even be an option for many countries on the periphery
of world capitalism. This is due partly to their disadvantages of
smallness, lack of resources, weakness o f the entrepreneurial class,
insufficient capital, and dependence upon prim ary production. In
other words a whole complex im peding growth which it is difficult to
break up. Partly it arises from outside influences. T he pressure from
the companies which control foreign trade and prim ary production
may be one factor. M ultinational corporations may be interested
in setting up production facilities for any num ber o f reasons. T he
state may be unable to launch m ore than limited industrialization,
largely because of failure to get a place in the export field or to
attract enough foreign capital; Egypt is a prim e example o f this.
T he experience o f industrialization is so different between
countries that approaches which have paid off in one case may
be of no relevance in others. To whatever school of thought
they belong, therefore, economists are chary in generalizing about
industrialization strategies. It is difficult to see how the experience
o f capitalist Japan could have m uch application, say, to tjie Soviet
Union or other planned economies. Even between Brazil and India
233
there are so many differences that it is doubtful whether one country
can supply any useful lessons to the other.
T he planned economies have aimed at establishing a self-reliant,
balanced economy with both capital goods and consum er goods
industries. India has attem pted something along the same lines
with its own Five-Year Plans, with a heavy industry sector mainly
under state control but with a consum er goods sector mainly under
the control o f private capital. T he results have been disappointing,
but that may be due partly to other difficulties which have not been
overcome, notably rural poverty and under-em ploym ent.
Small countries have to make a choice; where they are
influenced by private, profit-seeking firms it is likely that they will
opt for im port-substitution or export-orientated industrialization
based on the production of consum er goods. This will give rise to,
or intensify, dependence upon foreign capital and technology as
well as on export markets. It means that they will have to fit into
the ‘new’ international division o f labour in what will probably be
a dependent relationship with an increasing role for the MNCs.
Success, in the sense of rapid growth, may m ean that other goals
of ‘newly-developing’ nations may have to be forgone. Building a
more balanced economy will require state direction and is not likely
to be favoured either by foreign capital or by such institutions as the
W orld Bank.
T he m easurem ent of industrialization in quantitative terms is
crude, especially in the ‘developing countries’. T here may be rapid
growth in per capita income or in industrial production without
real development. T hus the majority may be left poor, hungry
and illiterate or, at best, lagging behind as far as living standards
are concerned. T he rural sector may rem ain stagnant while social
inequalities widen. It may be a long time before the benefits of
industrialization trickle down to the disadvantaged masses.
O ther goals may be preferable to rapid growth, such as: greater
national economic independence, a m ore equitable distribution of
income, a higher level of employment or the overcoming of rural
poverty. Selection of such goals cannot take place through the
market-place but requires state direction, at least in determ ining
the priorities. Certainly the Soviet Union and China, while pursuing
growth, have seen it as necessary for different objectives from those
pursued in the capitalist countries. Paradoxically, the consum er
has often not been so fortunate as in some other ‘successful’
capitalist industrializations. Comparison here becomes difficult,
if not impossible. Various attem pts have been m ade to compare
234
Conclusions
India and China, for example, but these have been handicapped
by inadequate factual and statistical inform ation for the latter.
O f course, there is a danger that the advocacy of industrialization
contains a Euro-centred bias. It suggests that the non-W estern
countries should follow in the footsteps of the advanced capitalist
countries, adopting the same life-style and the same pattern of
consumption. In a sense industrialization does, as usually u n d er
stood, involve some m easure of m odernization along W estern, or
European, lines. Thanks to the ‘dem onstration effect’, the ruling
class, and a large section of the population of most ‘developing
countries’ have accepted this implicitly, and without qualms.
Alternative strategies are conceivable to the advanced countries
and those who emulate them. T he Chinese, in Mao’s time, claimed
to have found one such strategy, and this gained some sympathy in
the West. Since Mao’s death, however, his successors have returned
to a m ore orthodox course and seem anxious to learn from W estern
models. T he Maoists used to say that the people ‘wanted revolution’,
whereas in fact they wanted much more: an improved supply of food
and consum er goods which the Chinese revolution appeared all too
slow in providing. If there is an alternative way of industrializing, it
cannot subsist on psychological benefits alone; it will have to yield
tangible advantages for the rural as well as the urban population.
No alternative strategy can be laid down a priori as a general
pattern or as the correct road for any particular country, centrally-
planned or market-governed. It is necessary to take into account all
the specific features of a given country, beginning with its resource
endowm ent, the existing factors of production and its relationship
to the world m arket (an im portant constraint in any case). T he goal
would then have to be decided, trading off growth per se against other
desired objectives. How could these be determ ined? In the situation
of a ‘developing country’ the m arket mechanism would seem to be
an inappropriate instrum ent for making such decisions, responsive
as it is in the first place to the pull of those with the greatest
purchasing power. If m arket forces are allowed to determ ine the
course of a country, then the social situation which results is simply
a by-product of those forces. T he situation in India or in Brazil is
eloquent testimony as to what the results are likely to be, with, or
without, growth.
However, it is not easy to fram e an alternative which does not
concentrate power at the centre, leading to people being given
what the rulers think they should have, and not what tfyey want.
A nother dilemma is that the people may not want what the rulers
235
think is good for them . T he problem is to enable democratic choices
to be expressed in the policy while embodying a m ovem ent towards
pre-conceived objectives. T he Soviet model is not o f m uch help and
the Chinese model of only limited validity because o f the special
conditions in which it was worked out. T he answer will probably
have to be found in some compromise between central planning and
decentralized industrial developm ent which gives greater powers to
the producers themselves and has a m ore direct relationship with
agriculture.
T here rem ains the external constraint, the international division
o f labour. At present this works unequally between nations, creating
dependence and fortifying underdevelopm ent of the primary-
producing countries. Ideally, world industrialization would be
coupled with a fundam ental change in these relationships, ending
imperialist dom ination o f the less-developed countries by the
advanced countries. T he pursuit o f self-sufficient developm ent is, in
any case, vain; only a genuinely new international division o f labour
based upon cooperation and some degree of planning offers a real
alternative.
236
Bibliography
T he main reason for having a bibliography at the end o f a book

o f this kind is to help the reader, probably a novice in the field,
to find his way through a mass of literature. Interest in the subject
o f industrialization has, in general, intensified in recent years and
this, with the broad geographical coverage o f this book, means that
there is an enorm ous num ber of relevant works and that num ber
is constantly being increased. This bibliography m ust therefore be
selective.
T he previous books, (mentioned in the Preface) Industrialization
in Nineteenth Century Europe and Historical Patterns of Industrialization,
contain book lists which should be consulted. Although some titles
have been repeated, it does not seem necessary to repeat those which
refer to the older industrialized countries. T he reader’s attention
is called, however, to a new study of E uropean industrialization
which stresses its regional character and diffusion from one region
to another; it is Peaceful Conquest by Sidney Pollard (Oxford U.P.
1981). By way o f contrast, see the interpretative account in Clive
Trebilcock’s The Industrialization of the European Powers (Longman
1982). O f interest as an explicit comparative study with a provocative
new thesis is Patrick O ’Brien and Caglar Keyder, Economic Growth
in Britain and France (Allen and Unwin 1978).
T he two main standbys on Japanese economic history are
G. C. Allen, A Short Economic History of Modern Japan (4th edn
Macmillan 1981) and W. W. Lockwood, The Economic Development
of Japan (expanded edn, Princeton U.P. 1968). T here are short
introductions by Yoshihara Kusio, Japanese Economic Development:
a short introduction (Oxford U.P. Tokyo 1979) and M. Takahashi,
237
Modern Japanese Economy since the Meiji Restoration (University of
Tokyo 1967).
T here has been a cascade of literature on Ja p a n ’s expanding
economy directed at the general public as well as the student, for
example H erm an K ahn’s The Emerging Japanese Superstate (Deutsch
1970; also in Pelican but out of print) and Ezra Feval Vogel, Japan
as Number One\ Lessons for America (H arvard 1979).
A massive study of Ja p a n ’s present-day economy by a team of
American economists is that of Hugo Patrick and H enry Rosovsky
(eds) Asia's New Giant: How the Japanese Economy Works (Brookings
1976); which is somewhat biased against the view that the state
played a crucial role. Jo n Halliday’s A Political History of Japanese
Capitalism (Pantheon 1975) is a useful corrective to the anodyne
treatm ent o f some W estern scholars. See also, on Ja p a n ’s past, Jo h n
Dover (ed.) Origin of the Modern Japanese State: Selected Writings of
E. H. Norman (Pantheon 1975). Also useful, is A ndrea Boltho Japan:
an Economic Survey, 1953-73 (Oxford U.P. 1975). On the cultural
and sociological side see C. N akane, Japanese Society (Pelican 1970).
T here is a massive library of books on Soviet economic develop
m ent, a rich field for controversy. For a reasonably well-balanced
survey, the obvious choice is Alex Nove’s An Economic History of the
USSR (Allen Lane 1969 and later Pelican editions); see also his
The Soviet Economic System (Allen and Unwin 1977). An American
textbook, am ong several, is Paul R. Gregory and Robert C. Stuart,
Soviet Economy: Structure and Performance (H arper 1974) and an older
translation from the French, Philippe J. B ernard, Planning in the
Soviet Union (Pergamon Press 1966).
For the controversy in the 1920s, see Alexander Erlich,
T he Soviet Industrialization Debate (H arvard 1960) and E. A.
Preobrazhensky, The Crisis in Soviet Industrialization (Macmillan
1980; translated and edited Don A. Filtzer). Developments in that
decade have been dealt with in relevant volumes of E. H. C arr’s
A History of Soviet Russia (Macmillan and Pelican editions) and
continued by R. W. Davies in the series now appearing with the
overall title The Industrialization of Soviet Russia; so far Vol. 1, The
Socialist Offensive and Vol. 2 The Soviet Collective Farm (Macmillan
1980) have appeared. T he detail is immense, thus making it a
reference book for students.
See also George R. Fiewal, The Soviet Quest for Economic Efficiency
(Praegar 1967) and Moshe Levin, Political Undercurrents in Soviet
Economic Debates, (Pluto 1975).
For the view o f Soviet economists see T. Khachaturov, The
238
Bibliography
Economy of the Soviet Union Today (Progress, Moscow 1977) and The
Soviet Planned Economy (Progress, Moscow 1974).
T he best introduction to Indian economic developm ent is still
Andrew Maddison, Class Structure and Economic Growth: India and
Pakistan Since the Moghuls. On industrialization under British rule
the fullest study is Rajat K. Roy, Industrialization in India, 1914—1947,
(Oxford U.P., Delhi 1979) which stresses profitability as the main
factor determ ining its extent. For British economic policy as a whole
see B. R. Tomlinson, The Political Economy of the Raj (Macmillan 1979)
and Clive J. Dewey, ‘T he Governm ent of India’s ‘New Economic
Policy4’, in K. M. C haudhuri and C. J. Dewey (eds), Economy and
Society (Oxford U.P. 1979).
Various views of the planning experience are to be found in J.
N. Bhaghati and Padim Desai, India: Planning for Industrialization,
Prem S. Jha, India: a Political Economy of Stagnation (Oxford, Bombay
1980) and Francine Frankel, India's Political Economy, 1947—1977
(Princeton, 1978).
On China there are a large num ber of books by American
scholars, surprisingly sympathetic on the whole considering the
ascerbic treatm ent often given to Soviet economic planning. T he
best introduction is probably the books by A lexander Eckstein,
which overlap: China's Economic Development (University o f Michigan,
1975) and China's Economic Revolution (Cambridge U.P. 1977). For
the 1950s and 1960s Ja n S. Pribla’s The Political Economy of Communist
China (International Textbook 1970) is very full. T he best study of
the Maoist period is perhaps by Stephen Andors: China’s Industrial
Revolution (Martin Robertson 1977). T he relevance of Chinese
experience to other developing countries is discussed by American
specialists in Robert F. D ernberger (ed.), China's Development Experi
ence in Comparative Perspective (H arvard 1980).
T he special features of China’s past can be studied in
Dwight H. Perkins (ed.), China's Modern Economy in Historical
Perspective (Stanford 1975), Mark Elvin, The Pattern of the Chinese
Past (Eyre-M ethuen 1973) and Albert Feuerw erker, China's Early
Industrialization (H arvard 1958).
T here is little of note from official sources, although there
was a good deal of writing by foreign supporters o f the Cultural
Revolution.
For the reasons why China’s m odern economic developm ent
differed from that of Japan, note the analysis by Frances W.
M oulder, Japan, China and the Modern World Economy (Canpbridge
U.P. 1977).
239
T he earlier history o f Brazil is covered in Laura Randall, Latin
American Comparative Economic History (Vol. 3.) Brazil (Institute of
Latin American Studies 1977) and Celso Furtado, The Economic
Growth of Brazil (Univ. of California 1963). For the British stake,
see R. Graham, Britain and the Onset of Modernization in Brazil
(Cambridge U.P. 1968). For the leading industrial region, W arren
Dean’s The Industrialization of Sao Paulo (Univ. o f Texas 1969) is
very enlightening. T he views o f a leading ‘dependency’ theorist,
Theotonio dos Santos, on Brazil are to be found in Ch. 4 in Ronald
H. Chilcote, and J. C. Edelstein (eds) Latin America: the struggle with
dependency and beyond (Schenkman 1974).
More ‘orthodox’ treatm ents can be found in books by American
specialists such as W erner Baer, Industrialization and Economic
Development in Brazil (Irwin 1965) and Donald E. Syvrud, Foun
dations of Brazilian Economic Growth (Hoover Institute 1972). T he
interpretation here has been greatly influenced by Peter Evans,
Dependent Development (Princeton 1979). On inflation see the chapter
on Brazil by Jo h n Wells in Rosemary T h o rp and Laura W hitehead
(eds), Inflation and Stabilization in Latin America (Macmillan 1979).
For a general introduction to the industrialization o f Nigeria,
see Gavin Williams (ed.), Nigeria: Economy and Society (Rex Collins,
London 1976) especially the editor’s own contribution, ‘Nigeria: a
Political Economy’. A nother Marxist approach is to be found in
the chapter by Barbara Callaway in The Political Economy of Africa,
Richard H arris (ed.), (Schenkman, Cambridge, Mass. 1975). T he
earlier stages of industrialization are covered in detail by Peter Kilby
in Industrialization in an Open Economy: 1945-1966 (Cambridge U.P.
1969). T he same period is seen in the perspective of a Nigerian
scholar in Ojetunji Aboyade’s Foundations of an African Economy
(Praeger, New York and London 1966). T here is a Germ an view
in M anfred Berger, Industrialization Policies in Nigeria (W eltforum
Verlag, Munich 1975). A thought-provoking study by an American
scholar is Sayre P. Scharz, Nigerian Capitalism (Univ. of Cal. Berkeley,
1977) which considers alternatives to the present course. T heodore
J. Biersteker attempts to estimate the effect of the MNCs in Distortion
or Development: Contending Perspectives on the Multinational Corporation
(M IT 1978). For indigenization see Indigenization of African Econo
mies, Adebayo Adedeji (ed.), (Hutchinson 1981), C hapter 7 by
Emeka Ezeife.
T he writing on industrialization in ‘developing countries’ is
abundant and diverse. H ere is a brief selection. From the W orld
Bank, Jo h n Cody, et al. (eds) Policies for Industrial Progress in
240
Bibliography
Developing Countries (Oxford U.P. 1981). A very different view is
expressed in Paul Baran, The Political Economy of Growth (Monthly
Review Press 1962, and Pelican), the writings o f A ndre G under
Frank, for example, On Capitalist Underdevelopment (Oxford U.P.,
Bombay 1975) express a similar, neo-Marxist view. This has been
heavily criticized by another self-styled Marxist, Bill W arren in
Imperialism: Pioneer of Capitalism (New Left Books 1980); a reply in
Jam es Petras, Critical Perspectives on Imperialism and Social Class in the
Third World (Monthly Review Press 1978), C hapter 4.
Earlier works include Albert Hirschm ann, The Strategy of Economic
Development (Yale U.P. 1958) and Harvey Liebenstein, Economic
Backwardness and Economic Growth (Wiley 1963).
O n ‘developing countries’ today see the B randt Report,
North-South : a Programme for Survival (Pan 1980) and a critique
by Teresa Hay ter, The Creation of World Poverty (Pluto Press 1981).
See also, Gyorgy Cukor, Strategies for Industrialization in Developing
Countries (H urst 1971) translated from the H ungarian, and a Soviet
view, V. I. Tyagunenko (ed.), Industrialization of Developing Countries
(Progress, Moscow 1973).
241
Supplementary Bibliography
(Second Edition)
T he study of industrialization, past, present and future, in

varied geographical settings, from different angles and with
varied theoretical tools, continues to attract increasing attention
from scholars. B ordering on and interpenetrating with other
processes, such as economic growth, development, urbanization
and associated problems, it generates a vast am ount of literature
from the newspaper report to the learned paper. It is impossible
to keep track of this m ounting volume o f material; in any case, this
bibliography confines itself to books (in English), while m uch of the
most useful work is in journal articles (and can be picked up from
the bibliographies of the specialised works cited).
This is not a book about the present-day ‘third world’ only;
indeed, it eschews use of this term , though it will be found in many of
the sources used. In fact a bibliography of industrialization is bound
to include many books and articles which are concerned mainly
with ‘economic growth’ or ‘developm ent’. This supplem entary
bibliography includes some of these and is deliberately selective. It
includes those books which have come the author’s way and help to
bring the study up-to-date.
C O U N T R Y S T U D IE S
Ja p a n ’s continued drive for economic pre-eminence is a perm anent

subject for concern and discussion. T he latest trends can only be
gleaned from the press — for example, the sogo—soshas (trading
242
Supplementary Bibliography
companies) have recently begun to diversify into industrial invest
ment, them e parks and leisure centres. A useful recent book is
Japan: Facing Economic Maturity by J. Lincoln (Brookings Institution
1988); see also C. McMillan, The Japanese Industrial System (Walter
de Gruyter 1984). An excellent short introduction to the economic
history of the country is W. J. McPherson, The Economic Development
of Japan, 1868-1941 (Macmillan 1987).
Glasnost and perestroika have already generated a considerable
literature. T he present state of the Soviet Union is surveyed, for
example, by E. A. Hewett in Reforming the Soviet Economy (Brookings
Institution 1988) and M. I. Goldman in Gorbachev's Challenge (W.
W. N orton 1987). A contribution to the historical argum ent is R.
Bideleux’s Communism and Development (M ethuen 1985).
O n India, see especially I. J. Ahluwalia, Industrial Growth in India:
Stagnation since the mid—Sixties, (Oxford U.P. Delhi 1985) and V. N.
Balasubramanyam, The Economy of India (Wiedenfeld and Nicolson
1984).
T he great changes in China since the death of Mao Tse—tung have
attracted a good deal o f attention. V. D. Lippit provides a balanced
view in The Economic Development of China (Sharpe 1987). See also,
H. H arding, China's Second Revolution (Brookings Institution 1987),
Carl Riskin’s China's Political Economy (Oxford U.P. 1987), China:
Asia's New Economic Giant by D. H. Perkins (Univ. of W ashington
1986) and, by M. Chossudovsky, Towards Capitalist Restoration ? (St
M artin’s Press 1987).
From Beijing comes the compendious China's Socialist Economy:
and Outline History edited by Liu Suinian and Wu Q ungan (Beijing
Review 1986).
T he newly industrializing Asian ‘gang of fo u r’, alternately
described as ‘the hungry tigers’ or ‘the four young dragons’,
pursue their industrial advance, regarded with curiosity and some
apprehension by the rest of the world. Since this book has only
referred to the experience o f South Korea and Taiwan, only works
concerned with them will be m entioned. No work has achieved a
wider public, as with several books about Japan. Most are directed
at specialists, but they are a frequent subject o f reports and articles
in the press.
General books on the East Asian countries include F. C. Devo
(ed.), The Political Economy of the New Asian Nationalism (Cornell U.P.
1987), In Search of an Asian Development Model (Transaction Books
1987) edited by P. L. Berger and H sin-H uang Michael Îsiao; on
these and other newly industrialising countries see N. Harris, The
243
End of the Third World (Pelican 1987) and the reportage by M. Smith
et al, Asia\s New Industrial World (M ethuen 1985).
On Korea a good introduction is Economic Growth and Structure
in the Republic of Korea by P. W. Kuznets (Yale U.P. 1977); see also
Government, Business and Entrepreneurship in Economic Development:
the Korean Case by L. P. Jones and II Sa-K ong (H arvard U.P. 1980)
and Economic Development and Social Change in Korea, Sung-Jo Park
et al, editors (Campus Verlag 1980). More critical is C. H am ilton’s
Capitalist Industrialization in Korea (Westview 1985).
Studies o f Taiwan available are also rather uncritical, see, for
example, Yuan Li—wu, Becoming an Industrial Nation (Praeger 1985),
S. P. S. Ho, Economic Development of Taiwan 1860—1970 (Yale U.P.
1978) and T. Gold, State and Society in the Taiwan Miracle (Sharpe
1986).
Not very much new is available in book form concerning Brazil
or Nigeria. For the form er a recent historical study by S. Topic is
useful, The Political Economy of the Brazilian State, 1889—1930; there
is also a translation o f a standard work by L. B. Pereira, Development
and Crisis in Brazil, 1930-1983 (Westview 1984). O n the latter, note
Political Economy of Nigeria edited by C. Ake (Longman 1985).
SOME GENERAL WORKS
For advanced studies there is the work by H. Chenery, S. Robinson

and M. Syrquin, Industrialization and Growth (Oxford U.P. for the
W orld Bank 1986) an imposing study. By way o f contrast, E. L.
Jones in Growth Recurring (Oxford 1988) puts all the emphasis on
‘growth’.
In their Theatres of Accumulation (M ethuen 1985), W. A rm strong
and T. G. McGee consider the urban consequences o f industrial
ization. T here is another geographical perspective in S. C orbridge’s
Capitalist World Development (Macmillan 1986). A nother aspect is
taken up by G. Sen in The Military Origins of Industrialization and
International Trade Rivalry (Pinter 1984). See also, G. Kitching,
Development and Underdevelopment in Historical Perspective (M ethuen
1982).
J. Toye considers the new emphasis on free m arket policies
in the developing countries in Dilemmas of Development (Blackwell
1987). For some Marxist views see Marxian Theory and the Third
World (Sage 1985) edited by D. Banerjee.
244
Index
advanced countries, 4- 5, 18, 22, 38, 113 Biafra, 188

Africa, African countries, 15, 19, 150, Bihar, 110
176, 194, 221- 2, 232 bill o f exchange, 7
African slaves, 148, 150 birth control, 113, 139
see also slave trade Black Africa, xiv, 19, 176, 181, 192,
agrarian change, reform , 4 , 35- 6, 52- 5, 194, 232
87- 8, 98, 109- 10, 129- 30, 210 black m arket, 34, 57
agrarian surplus, 2- 3, 21—2, 51, 57, 85, BNDE (Brazilian Development Bank),
88, 117- 18, 122 163
A gricultural D epartm ent (Nigeria), 179 Bolshevik Revolution (1917), 51, 205
agriculture, 7, 48, 51, 54- 5, 62, 68, 72, Bolsheviks, 54- 6 , 59
84- 5, 109- 10, 123, 125, 179, 193 Bombay, 87, 203
Albania, x Bombay Plan, 99
Algeria, 224 bourgeoisie, 51- 2, 59, 78, 114, 119, 129,
Allied Occupation o f Japan, 33—5 157, 160, 180, 183, 192, 206,
Amazon, 155 209
America, Latin see Latin America Brahmins, 86
American industry, 6, 8- 10, 32, 206 branch plants (of Multinational
American system o f m anufactures, 10 Corporations), 10, 16, 27, 44,
American worker, 9, 74, 220 47, 158- 9, 170, 172, 186, 211,
A nglo-Turkish T reaty (1838) 222 218- 9, 226, 233
Arab-Israeli conflict, 224 Brazil, xiii, xiv, 11, 15- 6, 19, 30, 32,
apartheid, 220 34, 47, 198, 202, 205, 208, 218- 9,
arm am ents production, 22, 27, 32- 3, 226, 232- 3; Ch. 6 passim
53, 73, 76 Brazilian model, 174
Jap an and U nited States com pared, Brezhnev, Leonid, 73, 75
32- 3 Britain, 4, 6- 8, 18, 24, 30, 32, 68, 91- 2,
arm ed forces, 21, 24, 31, 70, 105, 164, 94, 96- 7, 120, 148, 151- 3, 156,
168, 210 177, 182, 191, 199, 219, 226- 7
Asia, 2, 10, 15, 21- 2, 24- 5, 30, 47, British Empire, 71, 90, 92, 94, 96, 156,
105, 116, 122, 126, 143, 155, 194, 177
199, 208- 9 , 213, 226 British imperialism, 92, 94
atomic bomb, 33 British Industrial Revolution, 1, 7, 91,
226
Bangladesh, 222 British investment in Brazil, 152- 6
banks, banking system, 7- 8, 30, 40, 44, British model (of industrialization), 6- 8,
46, 89, 122, 191, 223 231
245
British rule collective farms, farm ing, 57, 67, 74, 135
in Egypt, 222 collectivization
in India, 84—93, 97- 8, 231 in China, 130, 134
in Nigeria, 177- 184 in the Soviet Union, 13, 57, 64, 66- 8,
Bukharin, N., 62- 5 74, 110
bureaucracy, 13, 20- 2, 41, 70- 1, 76, colonies, colonialism, 30- 1, 88, 149,
79, 81, 86, 105, 118, 126, 128, 151, 176- 83, 205- 6, 209
144- 5, 164, 180 comm and economy, 71
bureaucratic capitalism, 126, 211 com m anding heights, 56, 100, 145, 182
businessmen, 38, 41, 82, 94, 97, 100, communes, 12, 54, 231
103- 4 , 121, 157, 180- 2, 184 Peoples’ Communes, 135- 6, 140- 1
see also entrepreneurs Comm unist International, 59
Comm unist Party o f China, 116, 123,
Calcutta, 203 127, 131, 133- 4 , 136, 139
cameras, 37 Comm unist Party o f the Soviet Union,
Canada, 10 59, 62- 5, 76, 79- 80
capital goods, 7, 234 comparative costs, 200
capitalism, capitalist m ode o f compradore (capitalists), 121- 2, 129, 203
production, 2- 4 , 8- 9, 12- 4 , 25, 36, com puters, 73, 82
40, 46, 48, 51- 2, 59, 87, 89, Congress, Indian National, 98- 9, 110,
92, 100, 108, 112, 122, 126- 7, 206, 231
146, 157, 174, 178- 81, 184, 191, Co-prosperity Sphere, 32, 209
202, 209- 11, 228- 9, 231, 233- 4 cotton textiles, 52, 91- 2, 95, 121, 202
capitalist-roaders, 137 Cuba, x
Carribean, 150 Cultural Revolution, 136- 40, 142
cars, car industry, 11, 20, 163, 165 cybernetics, 79
cartels, 8
caste system (Hindu), 39, 85, 89
dachas, 81
cattle industry, 150, 155
dazibos, 145
cement, 104, 107, 185
de-agrarianization, 5
chewing gum, 206
debts, 27, 175, 193
Chiang Kai-shek, 209,
de Gaulle, Charles, 37
China, xiii, 5, 13, 15, 18, 24, 28,
de-industrialization, 6, 86
77, 79, 94, 98, 105, 199, 201,
dem onstration effect, 24, 105, 122, 162,
203, 206, 208- 11, 218- 19, 226,
235
234- 6 ; Ch. 5 passim
Dept I, 131
Chinese Comm unist Party, see
Dept II, 131
Comm unist Party o f China
dependency, 161, 169, 173
Chinese model, 236
Depression o f 1930s, 9, 13, 30—1, 69,
Chinese Revolution
94- 5, 158- 160, 180, 205
o f 1911, 116, 124
developing countries, 10, 38, 81, 145,
o f 1949, 13, 116, 127, 206, 209- 10,
172, 192- 4 , 198- 9, 206, 224- 6 ,
231
228, 234; Ch. 8 passim
Ching dynasty, 117, 119
developm ent economics, 172
cigarettes, 206
diam onds, 151
civil war
dualism, economic, industrial, 15, 23,
in China, 125, 129
28, 45, 174, 189
in Russia, 56- 8
dual power, 56
in U.S.A., 154
Dutch, 149-50
classical economic theory, 200
dyewood, 149
Classical World, 2
coal, coal-mining, 7, 71, 74, 94, 178
Coca-cola, 81, 206 East Africa, 178
cocoa, 156, 180, 182 East Asia, xii, xiv, 194
coffee, 150, 153- 60, 173 Eastern Europe, 13- 4, 71- 2, 131
Cold War, 43, 206, 210 East India Company, 88, 120
246
Index
Economic Commission for Latin foreign trade, monopoly of, 61
America, 161 France, 55, 120, 151
economic dualism, see dualism Free Officers, 223
economic liberalism, 22 free trade, 153
economic miracles, 14, 47, 149, 164, free trade zones, 219
169, 172 Free Womb, Law of, 154
Economic Planning Agency (Japan), 40 French Revolution, 55, 151- 2
economic zones, 146
economism, 137- 8,
Egypt, 16, 19, 222- 4 , 233 Gandhi, Mahatma, Gandhism, 95, 99
electrification, 61 G andhi, Mrs Indira, 106
Electrobras, 163 G andhi, Rajiv, 108- 9
electronics, 37, 42, 72, 211, 213, 218, Gang o f Four (Asian countries), 208
225 Gang o f Four (Chinese), 139
emancipation geographical position, 6
o f serfs (Russia), 52- 3 G erm an worker, 220
o f slaves (Brazil), 154- 5 Germany, 6, 8, 13, 25, 27, 70- 1, 200,
enclaves (of industry), 89, 122, 146, 203 220
enclosures, 110 gold, 151
energy crisis, 33 goods famine, 65
engineering, 22, 53, 107 Gorbachev, Mikhail, xii, 76, 183
Enlightenm ent, 119 Gosplan (State Planning Commission),
entrepreneurs, 3- 4 , 7, 16, 22- 3, 35, 95, 61, 63- 4 , 131
97, 121- 2, 160, 176, 179, 181, 184, G overnm ent o f India Act (1919), 94
186, 188, 191, 202, 207, 211, 232- 3 GPU, 67, 70
see also businessmen G reat Helmsman (Mao Tse-tung), 139
Europe, European countries, 1—5, G reat Leap Forward, 134- 5, 137, 141
115- 7, 120, 126- 8, 149- 50, 199, great spurt, 78
226, 228- 30 green revolution, 105, 111- 2, 193
Euro-centred, ix, 4 , 235 groundnuts, 180, 182
European model, 127 growth rates, 69, 73, 76, 82, 106- 7,
expanded reproduction, 39 144, 167, 169, 211, 214- 17
export-oriented industrialization, 208, Gujeratis, 89
211, 213, 218- 9, 225, 228, 233
Haiti, 152
Fabian (Society), 12 Haryana, 110
Factory Acts, 18 heavy industry, 42, 66, 71, 131- 2, 136,
Far East, 26 142, 231
feudalism, 2- 3, 117, 229 H indu caste system, 39, 85, 90
Fiat, 74 Hirohito, Em peror, 33
Five-Year Plans Hitler, A., 70
China, 77, 132- 34, 141- 2 H ong Kong, 120, 146, 213, 218- 9, 233
Egypt, 223 H ua kuo-feng, 140
India, 77, 98- 108, 110, 231, 234
Nigeria, 187, 193, 195
Soviet U nion, 50, 65- 8, 70- 4 , 77, 81, Ibadan, 189
205, 230 Igbos, 188
followers, 6, 36 Ikedo, Prime Minister, 41
forced labour, 62, 70 imperialism, 8, 24, 31, 92, 94, 126- 7
Fordism, 9 im port controls, 221
foreign aid, 37, 103- 5, 131, 219 im port-substitution industrialization,
foreign capital, 16, 25, 47, 53, 61, 80, 106, 122, 148, 159- 67, 169- 70,
88, 101, 105, 123, 126, 146, 148, 172- 3, 175, 185, 189, 192- 4
156, 169- 71, 178, 188- 91, 196, Independence
201- 2, 208, 213, 219, 232- 33 India, 84, 97- 8, 114
foreign models, 25, 140 Nigeria, 185, 192
247
India, x , xiii, xiv, 15, 18, 77, 201, 68, 74, 83, 86, 117, 122, 144- 5,
203, 2Q5- 6, 208, 227- 8, 231; Ch. 165, 170, 209, 219
4 passim Lagos, 177, 179, 189
Indian model, 19, 179 Lancashire, 87- 88, 90, 201
Indians (Brazil), 149- 50 landlords, landowners, 2, 22, 35, 51- 2,
indigenization, 184, 186, 190- 1 85, 88, 98, 110- 12, 117, 123, 129,
Industrial Commission, Indian, 93 209- 10,
Industrial Policy Resolution (of Indian latecomers, 6, 8, 23, 80, 143, 200
National Congress), 99- 100 Latin America, xiv, 10, 15, 17, 148,
Industrial Revolution 161, 165, 170, 173, 194, 218- 9,
in Britain, 2, 7, 91, 227 221, 226- 7, 232; see also Brazil
and India, 91 Law o f Similars (Brazil), 158, 161, 163
in Russia, 51 leather, 152
inflation, 20, 33, 55, 58, 93, 96, 129, Left Opposition, 63
146, 159, 164, 167- 8, 172, 175, Lenin, V.I., 55, 61, 63
193, 224- 5, 227, 232 Levant (immigrants from), 178
intellectuals, intelligentsia, 51, 79, 95, liberalization, xiv, 108, 196
98, 100, 122, 129 Liberated areas, 129
international division o f labour, 16, 97, Liberation Army, 130
199- 200, 221, 234 lifelong employment, 29, 45
International M onetary Fund, xiv, 175, linkages, 150, 154, 201
195- 6 Liu Shao-chi, 137
Iran, 224 livestock, 67, 72, 74
iron and steel, 7, 27, 42, 53, 71, 93, London, 96, 151- 2, 155- 6
104, 107, 194, 204, 213 Lysenko, 79
Israel, 223
Italians, 157 Macau, 218
machines, machinery, 7, 10, 21, 54, 91- 2
Jains, 83 Malthusian catastrophe, 113
Jap an , xii, xiii, 6, 8, 10, 11, 18, 53, managerial capitalism, 9
84, 86, 116, 119, 122, 125- 9, m anaging agencies, 92
199, 204- 5, 209, 211- 3, 226, 228, Manchuria, 30, 53, 122, 125, 144, 209,
230—1, 233; Ch. 2 passim 231
Japanese competition, 93, 220 Manchus, 117, 120- 1, 123- 4 , 126
Japanese model, 20, 209, 231 m andarins, 116
Jos, 178 Mao Tse-tung, Maoism, 18, 77, 115,
ju te, 91- 2 128, 134- 140, 142, 144- 7, 206,
231, 235
Kamenev, L.B., 63 M arketing Boards (Nigeria), 182, 184,
Kaduna, 189 187, 192
Kano, 189 Marwaris, 89
Keynesianism, 98, 108, 207 Marx, K., Marxism, 3, 12, 39, 59- 60,
KGB, 70 92, 98
Korea, 43, 143, 209, 233 Medieval Europe, 117
Korea, N orth, 14, 209 Medieval (period), 101
Korea, South, 11, 15- 6, 19, 43, 47, M editerranean, 2
143, 207- 13, 218- 9, 227, 230 Meiji (era), Meiji Restoration, 5, 21—5,
Korean War, 39, 43, 130, 206, 210 32- 3, 36, 39, 121, 126, 230
Korean worker, 220 mercantilism, 24, 118
Krushchev, N.I., 72, 80 M erchant capital, 3, 86, 118- 19
Kubitchek, 163 M ethuen Treaty, 151
kulaks, 53, 62, 64, 66- 7, 125, 130 Mexico, 198, 219
Kuom intang (KMT), 126, 209- 10 Middle Ages, 2, 115
middle class, 162, 173, 195
labour camps (Soviet), 67, 69- 70 military regime (Brazil), 168- 70, 173,
labour supply, 17, 23, 28- 9, 35- 6, 44, 175
248
Index
Ming Dynasty, 117 oil prices, 106, 172, 224
mining, 7, 171 oil producers, xii, 15, 224
Ministry o f Finance (Japan), 36 oil refineries, 42
Ministry o f International T rad e and oil revenues, 192- 5
Industry (Japan), 40—1 oil shock, crisis, 37, 44, 169, 224
mir, 52, 54, 57 oligopoly, 9
mixed economy, 84, 100, 108, 191 one-m an-m anagem ent, 132- 3, 137
modernization, 21, 52, 78, 115, 123, OPEC (Organisation o f Oil Exporting
125, 133, 140, 147, 156, 224 Countries) 224
Moghuls, 85- 7 open door policy, 206, 224
Moham med Ali (Egyptian ruler), 222 opium , opium wars, 88, 120, 125, 127
m otor cars, m otor vehicles, 10—11, 20, Opposition (in Comm unist Party o f the
37- 8, 42, 44, 163, 165- 6, 171, 195, Soviet Union), 63- 5
213 Platform of, 64
m otor cycles, 38, 42 organized capitalism, 25
M ultinational C orporations (MNCs), Orissa, 110
10- 11, 16, 19, 165- 173, 175,
188, 190- 2, 196, 199, 211, 213, Pacific area, 22, 26- 7, 31
218- 21, 224, 226, 228, 232, 234 Pact, Nazi-Soviet, 70
Muslim League, 97 Pakistan, 105—6, 227
Mutiny, Indian, 88 palm products, 177
Mysore, 110 Parsees, 89
Pearl H arbour, 32
Nanking, T reaty o f (1842), 120 peasants, peasantry, 8, 13, 35, 51- 4 ,
Napoleon I, 151 57, 60- 7, 88, 112, 118, 124- 5, 129,
National Congress see Congress, Indian 133- 4 , 141, 178- 80, 193, 210
National Peking, 118, 140
nationalism, 22- 3, 40, 94- 5, 97, 127, Peoples’ Communes see under
142, 181- 4 communes
Nationalist G overnm ent (China), 124, peripheral industrialization, 17, 221
126, 209, 211 periphery, 2
Nazi Germany, 13, 70 Peru, 154
N ehru, Jawaharlal, 99- 100 Peter the Great, 222
New Deal, 98 Petrobras, 163
New Delhi, 111 petro-chemical industry, 194
New Economic Policy (NEP), 58- 9, plan holiday, 105
61- 2, 64- 5 planning, plans, 12- 4 , 19, 40, 50, 60- 1,
new imperialism, 8, 126 63- 7, 69, 71- 3, 76- 8, 81, 83- 4 ,
newly industrializing countries, 14- 7, 98- 108, 128, 130- 7, 142, 163, 175,
198, 202, 208, 211, 218, 220- 1, 186- 8, 193, 230- 1, 233- 4 , 236
225- 6, 228, 233 see also Five-year Plans
new international division o f labour, plantations, plantation owners, 150,
16, 221, 226, 234, 236 152- 5
New World, 150- 1 plants, branch see branch plants
Nigeria, x , xiii, 15, 19, 208, 232; Ch. 7 plastics, 72, 75
passim pollution, 18, 48, 113, 117, 220
see also Protectorate o f Nigeria population, population growth, x , 113,
Nixon shock, 37, 44 117- 18, 167, 223, 227
non-W estern world, countries, ix, 4, population explosion, 113
127, 198 po rt cities, 88- 9
N orth Korea, 14, 209 Port H arcourt, 189
NVKD, 70 Portugal, 148- 52
poverty, 112- 3, 174, 198, 221, 223,
Occupation o f Japan, 33- 5 227, 231
oil, xiii, 192- 6 Preobrazhensky, E., 63- 6
oil boom, 193, 195- 6 pre-requisites, 5, 119
249
prim ary producers, 16 Second World War, 6, 8- 11, 20, 70- 1,
primitive accumulation, 59- 60, 64 77, 82, 91, 95- 7, 148, 159, 179,
primitive socialist accumulation, 64 181, 204- 5
privatization, xiv, 108, 196 self-management, 142
productive forces, 60, 140 serfdom, 51- 2, 82,
Program m e o f Targets, 163 serf emancipation, 52
Protectorate o f Nigeria, 177 Seven-Year Plan, 72
see also Nigeria Shah, o f Iran, 224
Provisional G overnm ent (Russia), 55- 6 Shanghai, 122, 145
pseudo-industrialization, 55—6 shipping, ship-building, 27, 34, 37, 42,
Public Law, 480 (U.S.A.), 105, 210 44, 202
Punjab, 110 shortcomings, 75, 82
purges, 70 Siberia, 74
silk, 23, 27, 30, 120- 1
Singapore, 208, 218- 9
railways, 52, 54, 88, 90, 92, 125, 153,
Sino-Soviet relations, 128, 131- 3, 142
156, 202
slavery, slave trade, 150, 152- 5, 176
Raj, British, 86- 8, 90, 97- 8, 105, 114
social costs, consequences, of
recession, 44
industrialization, 17- 9 , 48- 9 ,
reconstruction, 71- 2, 128- 9
69- 70, 112- 14, 173- 4 , 227- 8
recovery (of Japan), 35—8
socialism, 12- 3, 56- 60, 100- 2, 138, 184
Red Army, 57- 8
socialism in one country, x, 13, 59, 63,
Red G uards, 138
130, 143
Reformation, 2, 116
socialist(ic) pattern, 100—1, 108, 231
Renaissance, 2, 116
sogo-soshas, 38, 43
Revolution,
sorghum , 107
in China, (1911), 116, 124; (1949)
South Africa, 226
127, 210, 235
South Korea, 11, 15- 6, 19, 43, 47, 143,
in France, 55, 151- 2
207- 13, 218- 9, 227, 230
in Russia, (1905) 53- 4 , (1917) 11, 54,
South Vietnam, 207
60, 67, 129
Soviet aid to China, 136, 142- 3
rice, 117, 124
Soviet model, 12- 4 , 18- 9, 77, 128, 133,
Right Opposition, 57
142, 231, 236
Rio de Janeiro, 153
Soviet Union, ix, x , xii, 12—4 , 19, 34,
Roosevelt, F.D., 98
84, 98, 102, 107, 110, 130- 4 , 137,
Royal Niger Company, 177
142, 145, 207, 223, 230, 233- 4 ;
rubber, 155- 6, 165, 171
Ch. 3 passim
ruling class(es), 3, 21, 32- 3, 40, 85- 6,
Soviet workers, 74—5
118, 125, 156
Soviets, 56, 58
rupee, 95, 105- 6
Stalin, J.V ., Stalinism, 13- 4 , 50, 59,
Russia, 6, 11- 3, 24, 125, 143, 222;
63- 5, 73- 4 , 76, 79- 80, 128, 133,
Ch. 3 passim
137
see also Soviet U nion, Revolution in
staples-led growth, 160
Russia, T sar
state, x , 8, 12, 15, 22, 27, 36, 40, 50- 1,
99- 101, 108, 161, 163- 4 , 168, 171,
Sadat, A., 224 173, 184, 187, 207, 222- 3, 233- 4
samurai, 22 state o f Emergency (India), 106, 113
Santos, 153 State Planning Commission, see Gosplan
Sao Paulo, 15, 153, 155, 157, 167 steam engine, power, 7, 23
Sarney, J., 175 steel-eaters, 72
scale economies, x , 6, 10, 204, 213 steel industry, see iron and steel
scissors crisis, 62 sterling balances, 96, 100
scorched earth policy, 71 Stolypin, agrarian reform s, 54
seclusion policy, 21, 26 storming, 75
Second International (Socialist), 59 Suez Canal, 88
second take-off, 78 Suez W ar (1956), 223
250
Index
sugar, 149- 50, 152, 154 urban living, 42, 162
Sun Yat-sen, 123, 210 urban slums, 17
superindustrializers, 65 Uri, 178
supply-side, 109- 10 U ttar Pradesh, 110
surplus, 3- 4 , 21- 2, 85- 6, 117, 125, 150
synthetic fibres, 107
Vargas, 160
vegetable oils, 105
Taipings, 120, 123
Venezuela, 224
Taiwan, x, xiii, 15- 6, 19, 47, 207- 13,
Vietnam, 14, 207, 212
218- 9, 227, 230, 233
virgin lands project, 74, 80
tariffs, 10, 27, 92, 94, 139, 147, 158,
Volta Redonda, 163
161, 195, 200, 202, 205, 207- 8
VSNKh, 57, 65
tax in king, 61
Taylorism, 9
tea, 120- 1 wage-earners, wage-earning class, 3- 4 ,
technology, 1, 4—7, 9, 21, 23, 26, 48, 54, 155, 166
29, 37, 39, 42- 4 , 46- 7, 52, 68, war, 24, 26, 28, 31- 3, 39, 43, 52- 3,
72- 3, 77, 90, 121, 165, 169, 194, 55, 57- 8, 70- 1, 78, 93- 7, 105, 120,
202, 218, 231 124, 130, 148, 151, 157, 159, 181,
television, 38, 42 201, 204- 6, 209- 10, 212, 223, 230
Teng, Hsiao-ping, xiii, 140, 146 W ar Communism, 56—7
T en th Comm unist Party Congress war losses (Soviet Union), 71
(China), 186 Warsaw Pact, 81
textiles, textile industry, 7, 23, 25, 27, W ashington, 170, 173, 211
31, 42, 87, 90- 2, 121, 157, 231 welfare state, 99
Tientsin, T reaty of, 120 Wenzhou, 145
tobacco, 150 West Africa, 177
Togliattigrad, 74 West Indies, 150, 152
Tokugawa regime, 21- 2, 119, 125- 6 W estern Europe, ix, 6, 71, 75, 199, 230
Tokyo, 31 W estern model, 23, 127
Tokyo earthquake, 27 W estern powers, 31- 2, 51, 205, 211
toothpaste, 206 W estern World, 19- 21, 109, 126- 7, 199
trade unions, 29, 37- 8, 45, 98, 145, wheat, 124
166, 170, 175, 219 wines, 151
trading castes, 86- 7 Witte, Sergei, 53
traditional sector, 23, 108, 117 women, Indian, 113
transistor radios, 42 women, Japan, 28, 48
treaty ports, 15, 120, 122, 125- 6, 144, workers,
203, 218, 231 female, 28, 82
Trotsky, L.D., 55, 63 industrial, 5, 28, 53, 61, 122, 173- 4 ,
T sar, Tsarism, Tsarist Russia, 51- 5, 78, 228
80- 1, 143, 230 male, 28- 9
turnpikes, 7 working class, (proletariat), 17, 54, 56,
58- 9, 78, 82
underdevelopm ent, 84, 199- 203 W orld Bank, xiv, 11, 94, 105, 111,
unequal treaties, 21, 25, 116, 126 195- 6, 206, 218, 226
United Africa Company, 186 world economic crisis, depression
United Nations, 206 (1930s) 11, 27, 32, 94, 111, 195- 6,
U nited Opposition, 63- 4 201, 206, 218, 226
U nited States, xiii, 6 , 8- 11, 21, 30, (1970s) 20, 37, 44, 46- 7, 172, 175,
32- 5, 37, 43- 4 , 48, 76, 81, 104, 224- 5
120, 148, 154- 5, 159, 161, 165, world market, x , 6, 14—6 , 25, 34,
170, 206, 210- 12, 226 47, 69, 77, 80, 86, 88, 90, 119,
see also American industry 121, 125- 6, 143, 146, 163, 166,
untouchables, 86 173, 178, 181, 189, 194,1200,
urbanization, 5, 36 203- 5, 211, 218, 221, 225
251
World War, First, 9, 24, 26- 7, 55, 91, Yen, 30, 48
93—4, 157- 9, 178, 201, 203-5 Yugoslavia, 142
World War, Second, 6, 8- 11, 20, 70- 1,
77, 82, 91, 95- 7 , 148, 159, 179, Zaibatsu, 22, 27- 8, 31- 2, 34, 36, 43
181, 204-5 zamindars, 110- 1
Zinoviev, G., 63
252

Industrialisation in The Non-Western World

Uploaded by

Copyright:

Available Formats

You might also like

Industrialisation in The Non-Western World

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Industrialisation in The Non-Western World

Uploaded by

Copyright:

Available Formats

INDU STRIA LIZATION IN TH E NON-WESTERN WORLD

This page intentionally left blank

Published 2013 by Routledge

Routledge is an im print o f the Taylor & Francis Group, an informa business

C o p y rig h t © 1983 ,1 9 8 9 , T aylor & F rancis.

All rights reserved. No p art of this book m ay be reprinted or reproduced or utilised

ISBN 13: 978-0-582-02182-2 (pbk)

British Library Cataloguing in Publication Data

Set in 10/12pt Linotron Baskerville

1. Industrialization: past and present 1

2. Japan: a meteoric rise 20

3. T he Soviet model: a critical view 50

5. China: the slum bering giant awakes 115

6. Brazil: dependent industrialization 148

8. Industrialization in the ‘developing’ countries 198

We are indebted to the W orld Bank and O xford University Press

Industrialization is increasingly being studied by economists and

Chapel Hill, 24 Ju n e 1988

Industrialization: past and

T here is scarcely a country in the m odern world where an

THE BEGINNINGS OF INDUSTRIALIZATION

T he process began in a group of islands off the north-west coast

REASONS FOR INDUSTRIALIZATION

T he specific examples o f industrialization discussed in this book will

THE BRITISH MODEL

As industrialization moved into a higher gear the old British

THE NEED FOR INDUSTRIALIZATION

Since the Second W orld War, industrialization has been generally

Until the Russian Revolution o f 1917, industrialization had taken

While it has been argued that industrialization as a process has

THE SOCIAL COST

It is true, o f course, that every historical example shows that

Japan: a meteoric rise

T he impressive, indeed meteoric, rise o f the Japanese economy,

ECONOMIC EFFECTS OF THE FIRST WORLD WAR

T he First W orld W ar acted as a forcing house for the industriali­

Generally speaking, the continued existence of industrial dualism

T he Japanese economy underw ent a series o f troubles during the

WAR AND THE GROWTH OF NATIONALISM

T here is an obvious continuity between Ja p an ’s wartime experience

REASONS FOR SUCCESS

It is first necessary to demystify the economic history of m odern

T he emphasis on production, the subtle propaganda effort to

The Soviet model: a critical

Soviet industrialization will rem ain enshrined in history as m arking

THE REVOLUTION AND ITS AFTERMATH

THE NEW ECONOMIC POLICY

If W ar Communism was determ ined by military considerations and

T he time was now ripe for the adoption of an ambitious Five-Year

THE CONSEQUENCES OF COLLECTIVIZATION

T he first mistake that Stalin and his supporters m ade was to

As with collectivization, the drive for industrialization, begun in

THE HUMAN COST

THE SECOND WORLD WAR

T he war of 1941—45, by its scale and intensity, struck a heavy blow

T he first post-war task was to rebuild the shattered economy in

MODERN SOVIET INDUSTRIALIZATION

SOVIET INDUSTRIALIZATION AS A MODEL

T he First W orld W ar acted as a forcing house for the industriali

Actual cases show that it is extremely difficult for any u n d er